Vehicle expenses are generally deductible if they are incurred in generating income in your business. If you use a vehicle for a combination of business and private uses, you are generally required to maintain a logbook for a test period of three months every three years to show the proportion of business use.
Care needs to be taken to ensure that most business journeys recorded in logbooks can be cross-referenced to other records such as diaries, appointment books, quotes, invoices etc.
For companies, if a vehicle is available for private use by an employee (including shareholder employees) FBT will generally apply. Where the vehicle is subject to the FBT regime, then generally, all expenses in respect of this vehicle can be claimed.
Motor Vehicle Rates
If a privately owned car, (i.e. not owned by the business so is not included as a business asset), is used for business purposes, a claim can be made for the reimbursement of these expenses. The Inland Revenue Department allows taxpayers to calculate the business use of a private vehicle by using actual costs, by using a log book, or by using mileage rates.
The mileage rate for motor vehicles is 73 cents per kilometre for both petrol and diesel fuel vehicles.
From the 2016-17 income year, different rates apply for hybrid and electric vehicles:
- Hybrid – 73 cents per kilometre.
- Electric – 81 cents per kilometre
FBT implications of Motor Vehicles
A fringe benefit arises when a motor vehicle is provided by an employer to an employee (including a shareholder employee) where that motor vehicle is available for private use by the employee. This availability for private use may be restricted and so FBT is not payable on the days that the vehicle is not available for private use.
We strongly recommend that you contact us if it is likely that a business vehicle will be subject to the FBT regime as we may be able to mitigate the FBT payable. There is an FBT exemption for work-related vehicles, whereby home to work travel in these vehicles will not trigger FBT consequences.The rule for a “work related” vehicle is:
- It cannot be available for private use other than travel between home and work or incidental travel.
- The principal design of the vehicle is not for carrying people.
- The employer’s normal form of identification is permanently and prominently displayed on the exterior of the vehicle.
- There should be a letter from the employer to the employee prohibiting the vehicle for private use other than travel between home and work or incidental travel.
- Regular checks are carried out by the employer, and the employer documents these