If you use your vehicle regularly for business then claiming vehicle expenses is a must. And if you only use your vehicle occasionally for work it might not seem worth the effort at first. But individual amounts add up quickly and can substantially reduce your tax bill over the year. Putting in place a simple system for claiming vehicle expenses can make the process feel effortless. Don’t worry, we’ll show you how.
All self-employed people, including freelancers, contractors and sole traders, can claim expenses against their income. If you use your vehicle for business, whether you’re self-employed, in partnership or own a company, you can claim a portion of your vehicle expenses and reduce your tax bill.
As you’ve probably discovered, trying to get a straight answer on which expenses you can claim and how to claim them can sometime be a bit tricky. So we’ve put together this extensive article, based on the offical New Zealand tax guides (used by accountants) and the latest information from IRD, to help you with claiming vehicle expenses confidently.
Which vehicle expenses can you claim?
Below are the majority of the vehicle related expenses you can claim. For a complete list of all self-employed expenses, check out our personal tax deductible expenses article.
When deciding how much of each vehicle expense to claim you should always use the work related portion of your vehicle use (e.g 10%). Unless stated otherwise.
Fuel – Fuel and oil for your business related vehicle.
Registration & WOF – Vehicle registration or warrant of fitness fees.
Maintenance & Tyres – Commercial labour or material costs to maintain or fix your vehicle. If you’re doing the maintenance yourself, you can’t claim for your labour. This can also include commercial cleaning or cleaning products.
Parking & Tolls – Parking or tolls related to a work trip. But you can’t claim fines or tickets.
Car Insurance – Insurance on your work related vehicle.
Road User Charges – Road user charges for your work related vehicle.
How much of an expense can you claim?
How much of your vehicle expenses you can claim depends on how often you use the vehicle for business and how often you use the vehicle for personal trips.
If you only use your vehicle for business you can claim 100% of the costs. Make sure you keep records of your expenses such as receipts, invoices and bank statements.
If you use your vehicle for both business and private purposes you can claim up to 25% of your vehicle expenses before you need to keep a logbook. However, you still need to keep records of your expenses such as receipts, invoices and bank statements. And don’t be cheeky and automatically claim 25% if you estimate that your business use is actually less than that.
Travel between home and your place of work is not considered business use.
To claim over 25% you need to use one of the following three methods to prove how much of your vehicle use is for business:
1. Actual costs method
For this method you need to keep a record of all business trips made in the vehicle during the tax year. You also need to keep complete and accurate records for all the trips including:
- The reason for each business trip.
- The kilometre distance of each business trip.
- The total kilometres travelled by the vehicle during the tax year (including personal use).
- A record for all your business expenses, such as receipts, invoices and bank statements.
At the end of the tax year you then total 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.
E.g if the total of your business trips for the year is 7,000 km and the total distance the vehicle travelled was 10,000 km then you can claim 70% of your vehicle expenses for the year. 7,000 ÷ 10,000 = 0.7 = 70%.
2. Using a logbook method
If you use the logbook method you only need to keep a logbook of all your business trips for 3 months, once every three years. This is instead of recording all you business trips for the entire year as you need to do with the actual costs method.
You still need to keep a record for all your business expenses for the tax year tho, such as receipts, invoices and bank statements.
A logbook must record the:
- Start and end of the 90-day test period.
- Vehicle’s odometer readings at the start and end of the test period.
- Distance of each business trip.
- Date of each business trip.
- Reason for each business trip.
To create a logbook you can download IRD’s logbook template. There are also printed logbooks that you can buy from Warehouse Stationary and keep in your glovebox.
At the end of the 90-day test period you then total up the distances of all the business trips and divide it by the total distance the vehicle travelled during the test period. This will give you the business use percentage that you can use for three years.
E.g if the total of your business trips for the 90-day period is 1,000 km and the total distance the vehicle travelled during the 90-days was 2,000 km then you can claim 50% of your vehicle expenses for the tax year. 1,000 ÷ 2,000 = 0.5 = 50%.
However if the proportion of your business use changes by more than 20% throughout the 3 years you should start new logbook and update your business use percentage. At the end of the 3 years you will need to keep a logbook for another 90 days.
3. Kilometre rate method
When using the kilometre rate method you still need to keep a logbook for 90 days to work out your business use percentage.
If you use the kilometre rate method you don’t need to consider GST on your vehicle expenses. You also cannot claim depreciation for the vehicle as depreciation is included in the rates. And if you decide to use this method you must use it for the entire time that you own the vehicle.
Below are the rates per kilometre for the 2022/2023 tax year. IRD will publish the 2023/2024 kilometre rates after the tax year ends.
|Vehicle Type||Tier One Rate||Tier Two Rate|
|Petrol or Diesel||95 cents||34 cents|
|Petrol Hybrid||95 cents||20 cents|
|Electric||95 cents||11 cents|
The Tier One rate is used for the first 14,000 kilometres travelled by the vehicle in a tax year (including both business and personal purposes).
The Tier Two rate is applied to any travel over 14,000 kilometres in a tax year.
E.g if you own a petrol vehicle and travel a total of 30,000 km in the year and, based on your logbook, 70% of your travel is related to business. The calculation would be:
First 14,000 km (tier one) – $0.95 x 14,000 x 70% = $9,310
After 14,000 km (tier two) – $0.34 x (30,000 – 14,000 km) x 70% = $3,808
Total amount claimable – $9,310 + $3,808 = $13,118
How to calculate the GST on expenses
If you’re GST registered and using either the actual cost method or the logbook method you need to account for GST on all your vehicle expenses. The GST content on vehicle expenses can be claimed as they’re paid, in each GST return period, or at the end of your tax year.
When working out GST on an expense you first need to seperate the GST amount from the expense amount. Here’s Inland Revenue’s recommended formula to find the GST amount from a GST inclusive price – GST Inclusive Price x 3 ÷ 23 = GST Amount.
E.g. if your car insurance bill is $250 then the GST amount is $32.61 and the GST exclusive amount is $217.39
You then need to apply the business use percentage to both the GST amount and the GST exclusive amount to get the claimable portion.
Eg. if you use your vehicle 50% of the time for business then the GST claimable portion will be $32.61 x 50% = $16.31. And the income tax claimable portion is $217.39 x 50% = $108.70.
Be sure to claim the GST portion of the expense only in your GST return and not in your income tax return as well.
If you’re using the kilometre rate method you can’t also claim the GST portion of your vehicle expenses.
How to include vehicle expenses in your tax return
When the time comes for actually claiming vehicle expenses in your tax returns, here’s what you need to do. If you’re self-employed and registered for GST you will need to file GST returns throughout the year and an Income tax return (IR3), with a Financial Statement (IR10), at the end of the year. The following instructions relate to online returns which can be accessed through your myIR account.
Add up the claimable GST portion of your vehicle expenses for the return period. Combine this amount with any GST you’ve paid on other expenses during the same period. Add the total to the ‘Total GST paid’ box in your online return.
Income tax return (IR3)
If you earn self-employed income – subtract your vehicle expenses (along with any other expenses) from your total self-employed income to get your self-employed net income. Enter this figure in the ‘Self-employed net income’ box on the income page of your online return.
E.g. if you have $67,000 self-employed income for the year, your vehicle expenses are $8,500 and you have $5,000 of other expenses for the year then 67,000 – 8,500 – 5,000 = $53,500 self-employed net income.
If you earn schedular payments – total up your vehicle expenses (along with any other expenses for the year) and enter this figure in the ‘Expenses related to schedular payments’ box on the income page of your online return. If you earn both schedular payments and self-employed income make sure you only claim your expenses for one type of income.
Financial Statement (IR10)
The IR10 Financial Statement is part of your income tax return and is required for statistical purposes. The figures you enter in the IR10 will not effect how much tax you pay. Enter all you expenses for the year, including your vehicle expenses, into the relevant boxes.
Like you do for any other business expenses you are claiming, you need to keep invoices and other records for your vehicle expenses.
Records of expenses should include:
- tax invoices for purchases of more than $50 if you want to claim these in your GST return.
- evidence of payment, for example invoices, cash sale dockets or till receipts.
- bank statements for your business related accounts.
For expenses under $50 simply having a bank statement that shows the purchase is enough.
You need to keep these records for at least 7 years. Records must be in English or Māori.
Claiming vehicle expenses with Solo
Claiming vehicle expenses in Solo is simple. Just enter the percentage you use your vehicle for work and select a category for your transactions. All the tax rules and math get done for you and Solo connects directly to your bank account so you don’t have to enter any transactions. Solo even shows you how much income tax, GST and ACC you owe at any moment throughout the year and gives you all the information you need to file your tax returns.
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