Thinking about getting a vehicle for your business? Whether you’re dashing between job sites, meeting clients or making deliveries, using a vehicle for business can come with valuable tax benefits, but there are also a few things to consider.

Whether you buy the vehicle outright or lease it, you may be able to claim certain expenses to reduce your tax bill. Here’s a quick guide to how vehicle-related claims work and what to consider when deciding whether to buy or lease.

Ways to Claim Vehicle Expenses

If your vehicle is used for business, there are two main ways to claim expenses:

1. Claim a Percentage of Running Costs

You can claim ongoing costs like fuel, servicing,  repairs, WOF, vehicle registration and insurance.

You’ll need to keep records (like a logbook) to show how much of the vehicle use is for business. For example, if 70% of your vehicle’s use is for business, you can claim 70% of the running costs.

2. Depreciate the Vehicle

If the vehicle is owned by the business, you can also claim depreciation – a way of recognising that the vehicle loses value over time. The IRD sets depreciation rates depending on the type of vehicle.

How Depreciation of Vehicles Works

Depreciation is a way to spread the cost of a vehicle over the time it’s used in the business.

Instead of claiming the full purchase price in one go, you claim a portion each year to reflect the vehicle’s drop in value.

The two main depreciation methods:

• Diminishing Value: Claim a higher amount in the early years, then less each year after. Common for vehicles.
  (e.g. 30% per year on the reducing value)
• Straight Line: Claim the same amount each year.
  (e.g. 21% of the original cost, each year)

Example:

You buy a vehicle for $10,000 using diminishing value at 30%:

• Year 1: $3,000 claimed (30% of $10,000)
• Year 2: $2,100 claimed (30% of $7,000)
• Year 3: $1,470 claimed (30% of $4,900) …and so on, until the book value is close to zero or you sell the vehicle.

What is “Book Value”?

The book value is the vehicle’s value on your books after depreciation. If you sell it:

• Above book value: The gain is taxable
• Below book value: The loss is deductible
• GST: You must return GST on the sale if you claimed it when you bought the vehicle

So, depreciation gives you regular tax deductions, but it also affects what happens when you eventually sell the vehicle.

Buying Through the Business:  What it Means

Buying the vehicle through the business means the business owns it, not you personally.

Pros:

• You can claim both running costs and depreciation
• Potential GST claim on the purchase (if you’re GST registered)

Cons:

• When you sell the vehicle, you need to account for it in your books and potentially pay GST and income tax

Example: Let’s say you buy a van through your business for $10,000. Over time, you claim depreciation. If the van’s book value (its written-down value after depreciation) is $3,000 and you later sell it for $5,000:

• Because you’ve made a $2,000 profit, the difference is considered taxable income.
  If you sell it for less than the book value, then the loss is deductible.

You’ll also need to account for GST on the sale if you claimed it when you bought the vehicle.

What If You Lease Instead?

Leasing is often simpler, especially if you don’t want the hassle of dealing with depreciation and resale.

• Lease payments are usually fully deductible as a business expense
• You don’t own the vehicle, so no need to worry about depreciation or book value
• GST is claimed on each lease payment (if you’re GST registered)

Leasing can be a great option if you want to keep things straightforward, but buying can offer greater tax benefits over the long term if the vehicle will be used mostly for business.

Should I Buy or Lease?