Vehicle expense claim on IRD km rates.
Vehicle expense claim
—
Business km
—
Tier 1 / tier 2 split
—
Your breakdown
Updates live as you type| Step | Working | Amount |
|---|
The kilometre rate method, in plain terms
Inland Revenue gives sole traders and close companies two ways to claim the cost of running a vehicle for work. You can keep every fuel receipt, service invoice, insurance bill and depreciation schedule, then apportion the lot by business use. Or you can use the kilometre rate method, which rolls all of those costs into a single cents-per-kilometre figure that IRD publishes each year. This tool runs the second method. For most people who drive a personal car for occasional business trips, the kilometre rate is far less painful at year end, and it usually lands within a few hundred dollars of the receipt method anyway.
The rates come in two tiers. Tier one is the higher rate because it is meant to cover both the running costs and a slice of the fixed costs of owning the vehicle, such as depreciation and insurance. It applies to the first 14,000 kilometres of travel. Tier two is lower, covering running costs only, and it applies to everything above that. The figures baked into this calculator are $1.04 per kilometre for tier one and $0.35 per kilometre for tier two. IRD resets these annually, often after the petrol price moves, so check the current published rates before you file.
A 20,000 km year split across both tiers
Here is the catch that trips people up. The 14,000 kilometre cap is measured against your total travel for the year, not your business kilometres. You work out the tier split on the whole odometer reading, then apply your business-use share to each tier. Say you drove 20,000 km in total and 60 percent of that was for work. The first 14,000 km sits in tier one and the remaining 6,000 km in tier two. Your business share of each is what you actually claim.
The bulk of the claim, $8,736 of the $9,996, comes from tier one. That is why the first 14,000 km matter so much and why high-mileage drivers see their average rate per kilometre fall as more of their travel slides into tier two.
Who should use this, and the logbook you still need
This method suits a contractor, freelancer or one-person company who uses a private car for work runs and does not want to track every cost. It does not suit someone whose vehicle is close to fully business, where the receipt method on a fleet of high running costs can beat the capped rate. A common mistake is thinking the kilometre rate frees you from records. It does not. You still need a logbook or a defensible record of business travel to support the business-use percentage, and IRD can ask for it. A 90-day representative logbook can be used to set a percentage you then apply for up to three years, which is the practical way most people handle it.
One judgement call worth flagging: the kilometre rate method caps out. You can only claim up to a set number of business kilometres under this method in a year, after which you must switch to actual costs. If you are doing serious mileage, model both methods before you commit, because once you pick the kilometre rate for a vehicle you generally stay with it while you own that vehicle.
Can I claim mileage if I am an employee, not self-employed?
The kilometre rate method is for self-employed people and close companies claiming a deduction. As an employee you do not claim it on a tax return. Instead your employer can reimburse you tax-free for work travel, and many use the IRD rates as a reasonable benchmark for that reimbursement. Travel between home and your normal workplace is private and is not claimable either way.
Does the claim reduce my tax or my income?
It reduces your taxable income. The $9,996 in the example is a deduction against your business profit, so the actual tax you save is that figure multiplied by your marginal rate. At the 30 percent rate that is a little under $3,000 off your tax bill, not the full $9,996.