NZ Taxation Advisory Blog

Understanding Reimbursement for Private Vehicle Use When a company reimburses an employee for costs related to the use of their private vehicle for business purposes, this payment is classified as "expenditure on account of an employee." This means: It is not taxable for the employee—it is treated as exempt income under tax law. Shareholder-employees without PAYE income can still receive these reimbursements. The reimbursement can be calculated using the mileage rate set by the Commissioner, among other methods. How Reimbursement Works The reimbursement amount should reflect the actual business use of the vehicle. Companies can choose: Mileage rates: Using IRD’s standard mileage rates. Actual costs: Keeping track of all business-related vehicle expenses. Using the mileage rate is often the simplest and most commonly accepted approach. Links Reimbursing shareholder-employees for motor vehicle expenses and the use of the Commissioner's mileage rate Meaning of expenditure on...

The Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 introduced key updates to how these expenses are calculated and applied to shareholder-employees. How Vehicle Use is Treated A close company is defined as a company with five or fewer natural persons who hold more than 50% of the voting rights. When a shareholder-employee uses a private vehicle for company business, it is treated as business use by the company itself. This makes it easier for close companies to claim business-related vehicle expenses while ensuring tax compliance. Choosing the Right Method Close companies can elect between two methods for apportioning vehicle expenses: Kilometre Rate Method – Uses IRD-approved mileage rates to calculate business-related vehicle expenses. Cost Method – Requires detailed tracking of actual vehicle expenses and the proportion used for business purposes. This choice was officially inserted into the Income Tax Act 2007 by the 2017 tax amendments. Links Elect...

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. The Cost Method Under the cost method, you claim actual costs ass...

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 o...