At Haven Accounting we know that understanding the process for claiming vehicle expenses in New Zealand can be confusing, especially if you’re new to the process. We created this guide to help you understand the requirements and methods to claim motor vehicle expenses. We hope this guide will help you navigate the process to possibly save you money whilst ensuring you’re compliant.
What are motor vehicle expenses and who can claim them?
Motor vehicle expenses include:
All self-employed people can claim business expenses against their income. If you use your vehicle for business you can claim a portion of your vehicle expenses which will reduce the amount you pay in tax.
What is the difference between business and private use? How does that affect how much you can claim?
Business use includes travel undertaken for business, for example visiting clients or collecting materials and stock. Whilst personal use includes, travelling between home and work, as well as any other personal travel.
If you’re only using your vehicle for business purposes, you could claim the full running cost of the vehicle as business expense. However if you use your vehicle for both business and personal use, you can only claim the business percentage of the costs.
If you use your vehicle for business and personal use you can claim up to 25% of your vehicle expenses before you need to keep a logbook (although you’ll still need to keep a record of expenses either way).
How do you calculate your business use?
If you’d like to claim more than 25%, there are 3 ways to calculate your business use:
1. Adding up the actual costs
You’ll need to keep a record of all business use and expenses during the tax year. To do this, you’ll need to keep an accurate record including the reason for all business travel, distances of all journeys and details of private and work-related expenses,
At the end of the tax year you add up the distances of all the business trips and divide it by the total distance the vehicle travelled during the year. This will give you the business use percentage which will be the amount you claim against your motor vehicle expenses.
2. Keeping a log book
Alternatively, you can keep a logbook to calculate your business use. The amount will be valid for 3 months every 3 years. Although you’ll still need to keep a record of expenses for the whole year.
When keeping a log book the IRD suggests you need to record:
At the end of the 90 days you then total up the distances of all business trips and divide it by the total distance the vehicle travelled during the test period. This will give you the business use percentage you can use for the next 3 years.
However if the proportion of your business use changes by more than 20% throughout the 3 years you’ll need to redo your logbook.
3. Kilometre rate method
The third option is using the Kilometre Rate method where the IRD sets the standard kilometre rate each year for petrol, diesel, hybrid and electric vehicles. The rate is in a two tier system:
You’ll still need to record all of your business use during the tax year. If you’re using this method you don’t need to track your vehicle expenses as the kilometre rate covers depreciation and running costs.
Your vehicle expense claim for the year is the total of your tier 1 and tier 2 deductions. To calculate your deductions:
If you decide to use this method you must use it for the entire time that you own the vehicle.
How can Haven Accounting help?
Haven Accounting is here to provide tax support for your business. We can act as an agent for all your tax and ACC-related matters and provide the right advice to ensure tax obligations are met.
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