Motor vehicle expenses are one of the area’s that IRD have really been focusing on quite a bit over the past few months. It’s also an area that isn’t as clear cut when it comes to the rules for claiming expenses related to business.
Generally the rules are:
- If your vehicle is purchased and used for business only, all related expenses are 100% claimable for business purposes.
- If your vehicle is mixed use - part business, part personal then you need to be able to verify the business use to be able to claim it. This is where things get tricky….
There are 3 ways of claiming your motor vehicle expenses for business
- Keep a log book
- Claim up to 25% of running costs
- Claim actual costs
If you think that you use your vehicle more than 25% for business use, then we would recommend keeping a log book. A log book must be kept for 90 days, and then is valid for 3 years, as long as business use doesn’t change more than 20%. We recommend, if you have seasonal work, to keep your log book during your busiest season to calculate a better representation of the amount of travel for business use.
Your log book must include certain information
- Start date and odometer reading at the start of the 90 day period
- Date, distance and reason for each trip**
- End date of the 90 day period and odometer reading
**You need to record both business and personal trips to be able to calculate the percentage of business use.
When keeping log books you must record 100% of all travel and categorise trips as business and personal.
You can go the old school way and keep this as a physical book in your car. We would recommend using one of the many apps available now. One that we refer clients to a lot is Everlance - it’s free up to a certain amount of trips and uses GPS to record all trips as long as you have your phone with you. It’s easy to categorise these trips and then the total km’s can easily be provided to your bookkeepers and accountants to calculate the percentage claimable for business.
Once you have kept a valid log book for 90 days, you have two options for claiming expenditure
- You can claim the percentage of actual costs for business purposes
- You can use the kilometre rate published annually by IRD. Claiming the percentage used for business multiplied by the kilometre rate. If you use the KM rate this factors in all costs related to the vehicle - including depreciation.
Claiming up to 25% of running costs:
You can claim a maximum of 25% of running costs, if you don’t keep a log book. This includes fuel, WOFs, registrations, maintenance, insurance etc.
If you do choose to claim up to 25% and not keep a log book, you may still need to substantiate these claims if IRD requests further information.
You could also claim up to 25% using the kilometre rate as previously mentioned. The kilometre rate includes depreciation, so this would not be claimed separately.
Claiming actual costs related to business:
You can keep a record of actual costs incurred for business use and claim only these costs in relation to the business. This can be tricky as it could be difficult to split out what is business versus personal, and there is no way to backup the costs unless you are able to keep very detailed records.
Claiming actual costs allows you to claim any costs incurred in running the vehicle for business use as mentioned previously - fuel, WOFs, Registrations, maintenance, insurance etc. You can also claim depreciation.
IRD may ask you to substantiate these costs, and without a log book this could be difficult.
At My Two Cents we recommend clients that have mixed use vehicles either keep a log book if they feel business use is significant or stick to the maximum 25% claim.
If you do keep a log book - keep it simple and use an app. None of us have time for manual log books.
As always if you need help with motor vehicle expenses or need your situation clarified, please touch base with one of the team.