Every year the department sets out the rates for various categories of vehicles that are used for business purposes and for personal use.
To date there have been two options.
The IRD has introduced a new method from the 2018 income year (1 April 2017 – 31 March 2018).
The new method eliminates the 5000 kilometre cap and introduces two tiers.
The kilometre rate method had a cap of 5,000 kilometres per year prior to the 2018 income year. This cap has now been removed.
The first tier covers business travel up to 14,000 kilometres, and the second tier covers travel over 14,000 kilometres. The rate is 76 cents per kilometre for the first tier and then the rate varies for the second tier depending on wether the vehicle is petrol, diesel, hybrid or electric.
You should record your odometer figure every year on 31 March. The reason for this is to determine if you have exceeded 14,000 kilometres in any income year.
Once you have decided to use the Kilometre Rate Method, you can’t chop and change. Once you elect to use this method, you must continue to use it for as long as you own the vehicle. You could, however, use the alternative method with another vehicle as the method you elect to use is on a per vehicle basis.
In addition, no depreciation is allowed.
Alternatively, you can opt to use the Cost Method. This involves keeping a log book.
The log book must be kept for a period of 90 days and lasts for three years.
After 90 days you can work out the average proportion of business to private use of your vehicle. The logbook term is up to three years, provided variance of business use is less than 20% of the logbook representation.
The logbook must record the:
You can use your logbook to calculate the deduction for the costs you incur and the amount of depreciation loss for the business use of your motor vehicle.
In the absence of a log book or data to base the kilometre method on, 25% of running costs may be claimed so long as you can justify this.
More information is available on the methods from the Inland Revenue Department site here.
Posted: Fri 14 Sep 2018