Confused by what motor vehicle costs you can claim as a business expense? Whether you’re hitting the road for meetings, deliveries, or other business-related errands, it pays to get this right. Claiming the correct amount can have a significant impact on your tax bill!
Claiming actual motor vehicle costs
When claiming actual costs, keep track of all actual motor vehicle expenses incurred during the year. Use a logbook to determine the business percentage and claim the business portion as a tax deduction. For example, if the business use is 30% according to your logbook, then you would claim a tax deduction for 30% of all business costs incurred.
If you choose this method, a logbook must be kept for 3 months every three years. If you don’t keep a logbook then the maximum you can claim is 25%. You should be able to justify this claim if IRD questions it, so if you think your business use is actually less than this then claim a lower portion.
It’s a common misconception that if the vehicle has signwriting advertising your business, then all vehicle related expenses are 100% deductible. Unfortunately, this isn’t true, if your vehicle has any private use at all, then you must keep a logbook.
Claiming expenses based on mileage
Rather than tracking actual costs incurred, a logbook can be used to record all business trips taken throughout the year. The total mileage claim is then calculated by multiplying the business kilometres (kms) travelled by the kilometre rate provided by Inland Revenue (currently 95 cents per km for the first 14,000 kms travelled).
The mileage rate is designed to cover all costs, including depreciation, so it isn’t necessary to keep receipts or invoices when using this method but you will have to keep an accurate log of km’s travelled for business over the entire year. Note there is no GST claim when using this method.
Fringe Benefit Tax (FBT) – Companies Only
If your business trades through a Company, then you need to be aware of the FBT implications. Generally, if the vehicle is owned by the Company, all actual motor vehicle expenses are claimed. At the end of the tax year an FBT calculation is done (usually by your accountant), based on the number of days the vehicle was available for private use. So you don’t have to keep a logbook but it’s important to keep track of the number of days the vehicle was available for private use during the year.
If your vehicle wasn’t available for private use at all then there is no FBT to record. If this the case you should have another vehicle available for private use, store the vehicle at the workplace and keep a logbook for 3 months to substantiate the claim to IRD if required.
Note that there is an FBT exemption for vehicles that fit the IRD’s definition of “work-related vehicles”, however the exemption does not apply on days that the vehicle is made available for private use.
Tips for keeping a logbook
You can purchase a logbook from most stationery stores or print off a logbook template from IRD’s website. Your logbook must record:
- The start date and end date of the period.
- The odometer readings at the start and end of the period.
- Date and distance travelled of each business trip.
- Reason for each trip.
While keeping your logbook, try to keep private use low for a higher business portion. Note that travel from home to the workplace is considered private.
Whether you’re in business as a sole trader, partnership or Company, understanding the rules and requirements of claiming motor vehicle expenses is a must. Stay informed and if you’re unsure at any stage, don’t hesitate to contact us.