Can you put your car on the business? What if you use your car for business activities, but you also use it to take your kids to hockey and run to Countdown?
We hate to be the bearer of bad news, but in order to put a vehicle 100% on your business, it must be used for business purposes only. In most cases, that doesn’t include commuting. In New Zealand, the journey from home to your workplace is classed as a personal trip.
So, if your vehicle doubles up for both business and personal use, you can only claim a portion of the total costs.
Some vehicle expenses that may be tax-deductible include:
- Fuel & oil
- Registration & WOF (warrant of fitness) fees
- Vehicle maintenance
- Parking & tolls
- Road user charges
That means it’s time to track how you use your car, so you can put your best foot forward with Inland Revenue (IRD) when tax return day rolls around. Sounds daunting, doesn’t it? It’s not as bad as you think, for two reasons:
We didn’t see Vin Diesel scribbling about expenses in any scenes of Fast & Furious. Keeping a logbook may not be glamorous - but it could provide insights that could save you thousands of dollars in tax.
Doing this digitally (using tools like Driversnote or Xero mileage tracker) will make your life easier, but a paper logbook works too. Without logging anything, you will only be able to claim a maximum of 25% of the vehicle’s running costs. Even still, IRD might ask you to justify your percentage claim.
So let’s examine two main approaches for logging business vehicle use and how to implement them.
Keep track of the actual costs of running your business - both for private and work-related use. This covers the things we mentioned earlier, like fuel, WOF, etc. etc. If you’re splashing out on a new vehicle, you’ll be able to claim the work-related percentage of the GST.
Unfortunately, IRD won’t just take your word for things, so you’ll have to gather evidence as you go along. To use this method you will need to keep a 90-day logbook to work out the breakdown of business vs personal use.
In business finances, the scenic route is no good. Everyone wants to get stuff done as quickly as possible - and get out of there again. (Unless you’re us, and your love of numbers is bordering on obsession.)
We recommend using Driversnote to streamline the process. You’ll get a customizable report of all of your trips, downloadable as a PDF or Exel file, ready to hand over to your accountant. The logbook is ready to be used as documentation for e.g. reimbursement claims or submitted to the IRD for tax deductions.
Prefer doing it old school? You can keep a logbook manually too. The bottom line is, you’ll need to keep track of the following:
- The start date of the 90-day period, and the vehicle’s odometer reading
- The end date of the 90-day period, and the vehicle’s odometer reading
- The date, distance and purpose of every journey
- The total distance travelled in the 90-day period, and the percentage of that distance that was used for business
Once you have reviewed your logbook after 90-days, you can review the distance travelled for business vs personal purposes to work out the percentage you can claim going forward. For example if you travelled 400km in the 90 day period and you categorised 200km as business use, you will be able to claim 50% of vehicle costs as an deductible expense for the next 3 years.
The kilometre rate method is all about using given per-km rates to calculate your allowable expenses. IRD publishes kilometre rates for each tax year, and there are two tiers (no, not tears - we’re not crying about tax returns just yet):
Tier 1: Covers your vehicle’s fixed and running costs, used for the first 14,000 km travelled in a tax year (in the year ending 31 March 2022 this was 79 cents per km).
Tier 2: A lower rate that solely covers running costs and applies to travel after the first 14,000 km travelled in a tax year (this was 27 cents per km).
When using the kilometre rate method, we get by with a little help from our friends. Our friends at Xero, that is, and they can help you out too. The Xero mileage tracker uses the kilometre rate method to track business mileage automatically, taking the whole thing off your hands and streamlining the process.
The interface is beautifully easy to use; it reminds us a little of Uber. Whenever you are using your car for work, all you need to do is input your start location and destination, and Xero will log mileage and calculate the amount that needs to be reimbursed. Wondering if that means we’ll stop rambling on about percentages now? Yes, that’s exactly what it means.
Still got some questions about vehicle expenses in New Zealand? Shoot! Schedule a free call with the team at Bring On Monday or just email Danny on email@example.com and he’ll get right back to you to help you make sense of the chaos.