Motor Vehicles: What is claimable and what is not
Author: Michael Levertoff
Bringing a vehicle into your business
Whether you already have a vehicle that you use in the business that is not currently on the books, or purchase a new
vehicle, NZ Accounting can assist you in the process of introducing that vehicle into the business and recovering the
appropriate amount of GST back on the purchase price as well as the ongoing associated costs.
Calculating the business portion of vehicle running costs
If you are a sole trader or in a partnership and you use your own vehicle in the business, you can claim the running
costs for income tax.
If you use the vehicle strictly for business, you can claim the full running costs, without making any adjustments.
If you use the vehicle to travel from home to work, or any personal travel, you will need to separate the running costs
of your vehicle between business and private use. (Travel between home and work is not classed as business use.)
When a company owns a car, it claims all the expenses without making a private use adjustment. However, the company must
pay fringe benefit tax if the vehicle is available for employees' or shareholder-employees' private use. The company
will also have to calculate GST on the fringe benefit (see our fringe benefit tax (FBT) section under Businesses).
Working out adjustments
If your vehicle is shared between personal use and business use, you may claim up to 25% of the vehicle running costs as
a business expense by default. However, you could be asked to substantiate the percentage claimed.
If you wish to claim more than 25% of all vehicle costs, you must keep a logbook for at least three months every three
years. You will need to record the distance, date and reason for the trip in the logbook. You can use the difference
between the odometer readings at the start and end of the three months to work out the percentage of vehicle expenses
you can claim.
FBT
The following general principles apply to fringe benefit tax on motor vehicles:
If a company owns a vehicle, as long as a vehicle is available for private use (for example, travel between home and
work) by your employees, including shareholder-employees, you must pay fringe benefit tax. Your liability does not
depend on whether the employees actually use that vehicle.
Sole traders or partners in a partnership are not required to pay fringe benefit tax on a business vehicle they use
privately. However, they usually record their business use of the vehicle, as they must make an appropriate adjustment
in their income tax and GST returns.
Inland Revenue Mileage Rates
Alternatively, you may use your logbook records to claim back Inland Revenue mileage rates on your vehicle.
GST
All GST paid on the purchase price and running costs of vehicles is claimable.
Depreciation
A vehicle's purchase price cannot be claimed in one lump sum. Vehicles depreciate over a number of years according to
standard Inland Revenue rates.
It is important that you take this into consideration when purchasing a vehicle - because you'll be paying tax on the
money you use to buy a vehicle in the year of purchase and claiming that money back in depreciation over a number of
years. Make sure you've taken the tax you'll have to pay on that sum into account.
Financing all or part of the purchase price of the vehicle may be a better option than paying cash for your business
vehicle.
Michael Levertoff
Client Services and Delivery
NZ Accounting