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Mileage rate for self-employed people and reimbursing employees

September 20, 2017

Mileage rate for self-employed people

If you're self-employed you can use our mileage rate to calculate the cost of using your motor vehicle for business purposes.

You can use the mileage rates for the 2017-18 and prior income years.

Standard mileage rate for motor vehicles

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.

Rates apply to each income tax year (1 April to 31 March). If you have a non-standard balance date the rate applies from the beginning of your relative income year.

You can use this rate for up to a maximum of 5,000 km of work-related travel per year. For distances greater than 5,000 km, you must keep a record of actual vehicle expenses.

The 73 cents per kilometre rate applies irrespective of engine size or whether your vehicle is powered by a petrol, diesel or hybrid engine. The mileage rate does not apply to motorcycles.

The mileage rates for hybrid and electric vehicles apply from the 2016-17 year onwards.

Calculating business motor vehicle use if you're self-employed

There are three ways you can calculate the proportion of business use of your motor vehicle:

• actual costs

• a logbook, or

• a mileage rate for distances of 5,000 km or less a year.

Kilometre rates

For the 2017-18 and later income years you will be able to use kilometre rates published by Inland Revenue to calculate the amount of allowable expense in relation to the cost of using your motor vehicle for business purposes.

The kilometre rates will be set by reference to industry figures and based on the average per kilometre cost for the average vehicle. A draft statement will be released for consultation later this year.

More information will be provided once the rates are available.

Actual costs

If you believe your vehicle costs are higher than the rates given you can use the actual costs option.

You can claim deductions on your actual costs including depreciation loss for the business use of your motor vehicle. If you use this method you must keep accurate records including details of private and work-related expenses. Your records will need to show the reasons for and the distances of journeys for business travel.

Logbook

You can also work out the business use of your vehicle by keeping a logbook for at least 90 consecutive days. 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:

• 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 journey

• date of each business journey

• reason for each business journey, and

• any other detail that we may require.

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.

Default method

The deduction for costs of using a motor vehicle is limited to the lesser of:

• the proportion of actual business use of the vehicle, and

• 25% of the total use of the vehicle

where:

• actual records showing the proportion of business use haven't been kept, or

• the period of use if not reflected in the log book, or

• the mileage rate method can't be used.

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Employee reimbursement

To reimburse staff, including shareholder-employees using their own vehicle for work, you can use:

  • our mileage rate, or
  • rates published by a reputable independent New Zealand source representing a reasonable estimate (for example New Zealand Automobile Association mileage rates), or
  • actual costs.

Our mileage rate

We accept the standard mileage rate as being a reasonable estimate of the costs likely to be incurred by an employee. An employer may choose to use the applicable vehicle type rate per kilometre shown above for reimbursing employees.

The 5,000 km limit for self-employed people does not apply to employers using the mileage rate to reimburse employees. Although employers may use the mileage rate to reimburse employees that reimbursement must be a reasonable estimate of the costs likely to be incurred by the employee.

The reimbursement is exempt from income tax "to the extent to which it reimburses the employee for expenditure for which the employee would be allowed a deduction if the employment limitation did not exist". Employers who reimburse employees for business travel in excess of 5,000 km will need to consider whether the mileage rate is still a reasonable estimate of the employee's costs.

The rate applies irrespective of engine size or whether your vehicle is powered by a petrol, diesel or hybrid engine. The mileage rate does not apply to motorcycles.

Actual costs

You can reimburse an employee's actual costs instead of using the mileage rates. For this method both the employer and employee must keep accurate records, including details of private and work-related costs, to justify the reimbursements.

Or, you can make a reasonable estimate of the costs likely to be incurred by your employee or group of employees.

Close company and shareholder-employees

The kilometre rate is available to close companies where the only fringe benefit provided is the provision of one or two motor vehicles to shareholder-employees for their private use.

Close companies can elect to use the motor vehicle expenditure rules instead of paying FBT on the value of the benefit when the close company makes a motor vehicle available to a shareholder-employee for their private use and elects to apply the kilometre rate method.

In some circumstances a GST adjustment may be required to reflect any difference between the actual proportions of business and private use of the motor vehicle and the intended proportions of business and private use of the motor vehicle.

Once a company has chosen to use the kilometre rates method you will need to continue to use it until you cease to use the vehicle for business use or you dispose of the motor vehicle.


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