GRA Blogs

Articles by Anna Loginova

Anna Loginova

Claiming Motor Vehicle Expenses

3451

Motor vehicle expenses are a common type of expense incurred across a wide range of businesses. It makes sense to claim vehicle expenses when preparing your tax return, but you need to ensure this is done accurately. 

In the modern world, the same vehicle is often used privately in our everyday lives as well as for business, which can make claiming expenses accurately somewhat tricky. Additionally, there are different rules depending on what type of entity you are trading through. 


SOLE TRADERS AND PARTNERSHIPS

In order to clearly establish the apportionment between business use and private use, you need to run a logbook. Based on the logbook, there are two options that can be used for the calculation: the cost method based on actual costs, or the kilometre rate method.


Cost method

Under the cost method, you claim a deduction based on the business proportion of your actual motor vehicle costs. 

For example, a business owner collects all the receipts and invoices related to motor vehicles expenses (including registration and insurance etc), which total to $12,500. Based on the logbook, 60% of the vehicle’s use is for business. So, the calculation will be:

$12,500 x 60% = $7,500  

Therefore, the total to claim is $7,500. 


Kilometre rate method

Under the kilometre rate method (also often referred to as "mileage"), you are required to keep a logbook for at least 90 consecutive days to determine the proportion of business use versus personal use. This is then applied for a term of up to three years.  

You must make an election to use the kilometre rate method. Once the election is made, it is irrevocable, and the kilometre rate method must be used until the vehicle is disposed of. In other words, you cannot switch between the kilometre rate and cost methods. 

It is important to note that without the election, you are deemed to have chosen the cost method. 

Two tiers of rates for the kilometre method

There are two tiers of rates for the kilometre method.  

•  Tier 1: 95 cents* per kilometre for the first 14,000 kilometres related to business use. 

•  Tier 2: Over 14,000km, the rate per kilometre drops significantly to 34 cents* (This Tier 2 rate applies to petrol and diesel vehicles. Tier 2 rates are different for hybrid and electric vehicles, at 20 cents and 11 cents respectively.)

**Note the per kilometre rate changes regularly - check the IRD website for the latest rates. The above rates are as of 17 May 2023. 

Example: A car is used for business and private use. The logbook shows the car is used 60% of the time for business purposes, and travelled 20,000 kilometres for the year. So the calculation will be: 

14,000km x 95 cents x 60% = $7,980 

Plus (20,000 – 14,000) x 34 cents x 60% = $1,224

Therefore, the total to claim is $9,204.


What if I don’t keep a logbook?

If you don’t run a logbook, then deductions are limited to 25% of the use of the vehicle. So for the cost method, this means you can claim 25% of your actual costs. 

For the kilometre rate method, you can only apportion a maximum of 25% of the kilometres travelled to business use, with the same tier rates applying. This means that without a logbook, Tier 1 equates to the first 3,500 business kilometres (14,000 x 25%). 

Example: To illustrate, we’ll use the same circumstances as in the example as above, i.e. the car is used for business and private use and travelled 20,000 kilometres. At least 25% (or 5,000km) was for business, but this time, no logbook was maintained. Now the calculation looks like this: 

3,500km x 95 cents = $3,325

Plus (5,000km – 3,500km) x 34 cents = $510

Therefore, the total to claim is $3,835.

By not keeping a logbook, in this instance, you miss out on a claim of $5,369. 

In summary, if your business use is more than 3,500km per year, it is well worthwhile keeping a logbook for the first 90 days to be able to claim the full deduction you are entitled to.  


COMPANIES

Ordinary companies with five or fewer shareholders have different rules that they are required to follow in relation to motor vehicle expenses. 


Fringe Benefit Tax

Fringe benefit tax (FBT) must be calculated and paid to the IRD if a company’s vehicle is available to employees and/or shareholder employees to use privately, even if they do not actually use it. The FBT regime is complicated to follow, especially in relation to the quarterly calculations and annual FBT reconciliations, so seek help from a qualified accountant. 

If the vehicle is temporarily unavailable for private use (for example, being repaired), or it was used for an emergency call, then it is exempt from FBT during that period. 

Exemptions from FBT

Fringe benefit tax does not apply if you notify your employees in writing that the vehicle is not available for private use, except for travelling between home and work and travel related to the business (e.g. detouring to the post office for business related matters on the way to work).

To be exempt from FBT, there should be a separate document outlining the conditions, which is called a restrictive use agreement. Please get in touch with us if you need one.  


Cost or kilometre methods for companies

Close companies are also allowed to use the cost or kilometre rate methods as an alternative to paying FBT, provided that the vehicle is the employee’s only non-cash benefit. The election should be made via the company’s tax return and once it is done it cannot be revoked.

SUMMARY

Claiming motor vehicle expenses can be complicated. You need to consider various factors, including the business entity, and whether you are required to pay fringe benefit tax. Please get in touch with us if you have questions around vehicle mileage or would like to discuss this in more detail: Ph +64 9 522 7955, info@gra.co.nz or via our website


Anna Loginova
signed
Anna Loginova
Partner
© Gilligan Rowe & Associates LP

Did you like this article? Subscribe to our newsletter to receive tips, updates and useful information to help you protect your assets and grow your net worth. We're expert accountants providing expert advice to clients in NZ and around the world.

Disclaimer: This article is intended to provide only a summary of the issues associated with the topics covered. It does not purport to be comprehensive nor to provide specific advice. No person should act in reliance on any statement contained within this article without first obtaining specific professional advice. If you require any further information or advice on any matter covered within this article, please contact the author.
Comments

Add a Comment

Log in or sign up to post a comment

Testimonials
Hi Salesh, I just wanted to send you an email on behalf of GRA to say how fantastic we have found your company to date. As you know, Ben and I joined GRA a couple of months ago and have just found you so amazingly helpful in getting our new property set up correctly and sorted out. We have what I would consider a rather complicated structure as a result and it’s a fantastic feeling to know that we are getting everything done in the best way possible. We have just had approval to put a minor dwelling on the property which will make a massive difference in terms of cash flow and obviously value, something we would never have even thought of without GRA and which we are very excited about. During the buying process we attended a seminar with Matthew and from the outset thought he was fab. We therein signed up for property school and found this nothing short of fantastic. The content was relevant, up to date and comprehensive, but more importantly it was taught in a way that we could actually understand and really get value out of. I wanted to mention also, that everybody GRA have recommended to us has been just so efficient and absolute masters at what they do. A wonderful network of people that we feel very lucky to now be able to call on. From Kris Pederson and Bryan Rist who put our mortgage together to the insurance guys they then referred us to, I’m super impressed. Within GRA, Ellery has probably turned things around for us faster than I’ve ever known before, something which we appreciated so very much when it came to crunch time. She’s always a pleasure to deal with and again, we’re stoked. We’ve just settled on the property today and are about to go and get the keys. I’m pretty pumped and hence this email is probably rather excitable. So, a massive thank you to you Salesh, the partners for such a fabulous 6 weeks at property school and everyone at GRA for their help. May this be the start of our property empire. Thanks again, - A & B - July 2015
We can help
Here's how

Property 101by

Investing in residential property?

Put this at the top of your reading list.



If you're investing in residential property, seeking to maximise your ability to succeed and minimise risk, then this is a 'must read'.

Matthew Gilligan provides a fresh look at residential property investment from an experienced investor’s viewpoint. Written in easy to understand language and including many case studies, Matthew explains the ins and outs of successful property investment.

  • How to find the right property
  • How to negotiate successfully
  • Renovation do's & don'ts
  •  Property management 
  • Case studies and examples
  • and much, much more...
TOP