If you use your private vehicle for business purposes, you can charge the business-related portion of vehicle expenses as a business expense. Whether you’re running a small business or working as a sole trader, understanding how to accurately calculate and claim these costs is key.
Charging for Business Use of a Private Vehicle
When using your private vehicle for business, you can either use the kilometre rate method or actual cost method to charge for business expenses.
Kilometre Rate Method
The kilometre rate method is a simplified way to claim vehicle expenses. For the 2021-2022 tax year, the IRD-prescribed kilometre rate is 83 cents per kilometre. This rate can be applied to the business kilometres you’ve recorded in your logbook, whether your vehicle runs on petrol, diesel, electricity, or is a hybrid.
To calculate business use:
- Keep a logbook to record business kilometres,
- Apply the prescribed kilometre rate to those business kilometres.
For example, if your vehicle ran a total of 14,000 kilometres in a year, and 10,000 of those kilometres were for business, you could claim 83 cents per kilometre for the business-related 10,000 kilometres. IRD usually publish the rates for the tax year just ended by May.
Actual Cost Method
If you prefer a more detailed approach, you can claim actual costs related to your vehicle. This method requires tracking all vehicle expenses, including:
If you prefer a more detailed approach, you can claim actual costs related to your vehicle. This method requires tracking all vehicle expenses, including:
- Fuel costs (petrol, diesel, or electricity),
- Maintenance and repairs,
- Insurance,
- Warrant of fitness (WoF),
- Parking costs.
To use this method, you’ll need a logbook that:
- Records the kilometres travelled for business purposes to ensure you’re correctly apportioning the costs between business and personal use.
- Identifies the reason for each business trip,
How to Use a Logbook
Regardless of which method you choose, a logbook is essential to track your vehicle’s business use. The logbook should include:
Regardless of which method you choose, a logbook is essential to track your vehicle’s business use. The logbook should include:
- The date of each trip,
- Start and end points of the journey,
- Odometer readings at the start and end of the trip,
- The purpose of the trip
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