Vehicle use calculation method
This method is based on keeping a record of all actual costs incurred. You have two options with this method:
- Use a logbook
Keep a logbook for at least 90 days. This 90-days of activity needs to be completed once every three years. You can download a free vehicle expense logbook from the IRD.
Your logbook should record:
The start date of your recording and the vehicle’s odometer reading on that day.
You will need to record distances, dates, and the reason for travel, for example, meetings, visiting clients or delivering goods.
You will need to record the vehicle’s odometer on the last day of the 90-day period.
The total distance travelled during the 90-day period can be seen in the two odometer’s readings. Now you can look back in your logbook and total all the distances travelled for business purposes. With these two figures you can calculate the percentage the vehicle was used for business purposes.
Business travel total divided by (start date odometer km reading minus the last day odometer km reading)
- Claim up to 25% of your total vehicle expenses
You can claim 25% of the running costs for your vehicle as a business expense by default. However, be aware as you could be requested to justify what that 25% was used for.
Although it may seem easier to use method #2, it’s recommended to use method #1 because it represents a vehicle’s actual business use more accurately.
Kilometre Rate Method
From 2019 you can use a “two-tier kilometre rate” that can be used to calculate vehicle costs for your business. You will need to keep track of the kilometres travelled to determine the business portion as a percentage. The method to calculate this is based on the number of kilometres travelled. There are two tiers – below and above 14,000km per year.
First tier (below 14,000km) you can claim fixed costs such as depreciation, licence fees, WOF etc as well as the running costs at a rate of 79c per km for any vehicle type. This rate can only be used for the first 14,000km per financial year.
Second tier (above 14,000km) you cannot claim fixed costs. The running cost rate is dependant on your vehicle type (the categories are petrol, diesel, hybrid or electric). This is for any kilometres travelled that exceed 14,000 per financial year.
Tier Two rates for 2019
Petrol or Diesel: 30 cents.
Petrol Hybrid: 19 cents.
Electric: 9 cents.
If you don’t keep a logbook, the first-tier rates will be restricted to the first 3,500kms instead of 14,000km.
Calculation formula for Business Vehicle Expenses:
(Number of km travelled) x (Rate for your vehicle type) = $X
(Work portion percentage) of $X = The amount you can claim
You have a Hybrid vehicle, you travelled a total of 40,000km in a financial year. Your 90 day logbook says the vehicle usage is 20% personal and 80% business use. Your calculation will include both tiers.
Tier One: 14,000km x 79 cents = $11,060
80% (Business use) of $11,060 = $8,848
Tier two: 40,000km (total) -14,000km (already done in tier one) = 26,000
26,000 x 19 Cents (Rate for hybrid) = $4,940
80% (Business use) of $4940 = $3,952
Total claimable amount = $8,848 + $3,952= $12,800
You can also use this handy vehicle expense calculator provided by SBA.
What to do with the GST when you buy a Vehicle
If your company buys a vehicle for business use, you can claim back the GST on the purchase. Keep in mind that the amount claimed must correspond with the portion of the vehicle that is used for business only. You may have to make a future adjustment to the GST claimed if it’s found that the business use proportion differs to the original GST claim made.
GST can be claimed if actual running costs are used but cannot be claimed if the kilometre rate method is used.
If you are confused about what you can or cannot claim for your vehicle, contact your local SBA. We have been helping small businesses with their accounting and tax requirements for over 20 years. Enquire below.