Vehicle & mileage claims

Quick answer

If you use a vehicle for business, you can claim the business-use portion of its costs. There are two main ways to do it: the kilometre-rate method, where you claim a set rate for each business kilometre travelled, and the actual-cost method, where you total the real running costs and claim the business percentage.

Both methods rely on knowing your business-use percentage, and the only reliable way to establish that is a logbook kept for a representative period (commonly a continuous three-month run). The trip from home to a regular workplace is private; travel between jobs, to clients, or to the bank for the business is generally work.

The detail, in plain English

Kilometre-rate method. IRD publishes a tiered rate each year, a higher rate for the first block of business kilometres and a lower rate beyond it. You multiply your business kilometres by the rate and that is your claim. It is simple and needs no fuel or repair receipts, but it caps the number of kilometres you can claim this way each year.

Actual-cost method. You add up everything the vehicle costs to run, fuel, servicing, tyres, registration, insurance, and depreciation, then claim the business-use percentage of the total. This usually gives a bigger claim for higher-cost vehicles or heavy business use, but it needs full records.

The two approaches compare like this:

A logbook is the backbone of either method. Record the date, distance and reason for each business trip over your test period, work out the percentage, and you can apply that percentage for up to three years before refreshing it, provided your use has not changed materially.

A simple example

Hemi keeps a logbook for three months and finds that 40% of his driving is business.

Kilometre-rate method: over the year he drove 6,000 business kilometres. Applying the tiered IRD rate to those kilometres gives him a straightforward claim with no receipts to chase.

Actual-cost method: his total vehicle running costs for the year were $9,000, plus depreciation. At 40% business use that is a $3,600 running-cost claim before depreciation is added on top.

For Hemi, the actual-cost method gives the larger deduction because his car is relatively expensive to run, but he has to keep every receipt. Someone with a cheap, low-mileage car would often be better off, and far less burdened, using the kilometre rate.

Common mistakes to avoid

• No logbook. Without a record of business use, any percentage you claim is a guess, and it is the first thing IRD will challenge.
• Claiming the commute. Travel from home to your usual place of work is private, not business.
• Mixing the two methods. Pick one method for the vehicle for the year; you cannot cherry-pick the best parts of each.
• Switching method on a whim. Moving between kilometre-rate and actual-cost has consequences for depreciation, so it needs to be deliberate.
• Forgetting company vehicles are different. A vehicle owned by a company can bring FBT into play where there is private use, which is a separate set of rules.

Where this fits in your return

For a sole trader, the vehicle claim reduces your business profit on your IR3. For a company, vehicle costs sit in the company accounts and IR4, and where an owner uses a company car privately, fringe benefit tax may apply instead of, or alongside, a simple expense claim. Getting the ownership and method right at the start saves untangling it later.

How Fernway can help

We will help you pick the method that gives the best result for your vehicle, set up a logbook that satisfies IRD, and make sure company vehicles are handled correctly so an FBT bill does not ambush you. It is a deduction worth getting right every year.

This is general information only, not personalised tax advice. Your situation may differ, so book a free 20-minute review and we will sort your vehicle claim out.

In plain English: keep a three-month logbook, pick the kilometre rate for a cheap car or actual costs for an expensive one, claim only the business share, and never claim the daily commute.