When you're using your vehicle for both business and personal purposes, the way you claim tax deductions for motor vehicle expenses in New Zealand comes down to two options: the kilometre rate method or the cost method. Both are outlined in Operational Statement 19/04A1 and prescribed under the Income Tax Act 2007, but once you choose one, you’re locked in.
The Kilometre Rate Method
This method allows you to claim a deduction based on a fixed per-kilometre rate set by Inland Revenue. It simplifies record-keeping since you don’t need to track every individual cost like fuel, repairs, or depreciation.
To use this method, you must:
- Keep a record of business kilometres travelled (e.g., via a logbook).
Advantages:
- No need to calculate individual vehicle expenses.
- Ideal for small businesses or sole traders with moderate vehicle use.
Limitations:
- Not suitable if actual costs are significantly higher than the kilometre rate.
Under the cost method, you claim actual costs associated with operating the vehicle, such as:
- Fuel,
- Maintenance and repairs,
- Registration and insurance,
- Depreciation or finance costs.
You must apportion business use based on a 90-day logbook or another IRD-accepted method. This method suits businesses with high vehicle costs or if the kilometre rate doesn't reflect your true expenses.
Advantages:
- May give a higher deduction if vehicle costs are high.
- Reflects actual expenses more accurately.
Limitations:
- Requires detailed record-keeping.
Links
- Operational Statement OS 19/04A1 – Kilometre rate method
- Income Tax Act 2007 – Election to use kilometre rate method or costs method