What motor vehicle expenses can I claim for my business?

Here’s the deal. Everyone is trying to make the most of their ability to record their personal vehicle use as a business expense, and in response, the IRD is doing their best to minimise the eligible criteria.​

When you’re a client of ours, you won’t have to worry too much – we make sure you always claim the right amount. But regardless, let’s explore how the system works.​

If your vehicle is used solely for business purposes, all motor vehicle expenses (fuel, maintenance, servicing, insurance, WOFs, replacement tyres, and similar) can be claimed as expenses.​

But business purposes doesn’t include school drop-offs, going to the supermarket, or even travelling between home and work. The only possible exception here is when your home also acts as your office.​

When a sole trader or partnership chooses to use a business vehicle privately, too, the costs need to be separated.​

A logbook records all travel over 90 days. It notes the distance, date and reason for each trip. This information can then be used to understand the proportion of use allocated to the business, and we can choose one of two methods:​

Assuming your travel habits don’t change significantly, your logbook can be valid for up to three years.​

There’s also some good news about logbooks. While you can still find a template on the IRD’s website, you can digitise the whole process with an app to save time. You may want to check out Driversnote and this review of other great apps for small businesses.​

If you don’t intend to keep a logbook, you have two more options.​

1. Claim up to 25% of all vehicle expenses. The IRD may ask you to justify whichever percentage you opt for​

2. Claim $0.82 per kilometre for up to 3,500km, and then a lower rate for additional kilometres. You’ll still need to track your business travel, but without as much detail as in a logbook​

In addition to the methods mentioned above, companies have another option. Here’s how the “Motor Vehicle Reimbursement” (also known as “FBT Reimbursement”) works.​

First off, if the vehicle was purchased from a third party, it is recorded at its purchase price. However, if purchased from a related party (yourself as shareholder, your mother, aunt, mate), then you need to work out the market value. The easiest way is to look in Auto Trader or TradeMe Motors for a vehicle with the same year, make and model, and similar condition. We can use the advertised price as its market value.​

If a shareholder decides to use the vehicle for private use, this benefit they’re receiving must be recorded in the company’s financial statements. We call it a benefit that the shareholder is receiving, because they don’t need to purchase a car, and the company is paying for their vehicle expenses.​

We calculate the reimbursement based on the vehicle’s value when it was brought into the company, and the number of days it’s available for private use. The reimbursement is then recorded as a separate income line in the company’s financial statements (it’s considered income because the company is receiving compensation from the shareholder).​

It’s important to understand the concept of availability. Shareholders reimburse the company for any day that the vehicle is available to them – which includes when it sits in their driveways.​

An important note is that FBT Reimbursement doesn’t apply to non-shareholder employees. Their benefit falls under the Fringe Benefits Tax (FBT) regime and is accounted for separately.​

You can, indeed.​

No cash needs to change hands. You can just let your accountant or our support team know, and we’ll enter the information into Xero for your next GST return. Just be aware that your accountant will make an adjustment for the private portion of expenses at the end of the year.​

You can claim all of it up-front. In fact, some lenders will require that you use your GST refund to repay part of the loan.​

Again, just provide us with the sale and purchase agreement and your financing arrangement. We’ll enter it into Xero and make sure the full purchase price is picked up in your next GST return.​

They aren’t. The payments are going towards reducing your loan balance. However, we can claim the interest on the loan for business purposes. We make this adjustment when we prepare your financial statements.​

It depends. ​

Here’s when we often get the follow-up question: “What is my best option for tax purposes?”​

That’s one we can’t answer. It’s more of a business decision and it depends on your cash flow, available finance and personal preferences.​

We’re an online accounting firm that is always right here for you, your accounting pain relief. The most advanced technology lets us work way more closely with you than a normal accountant would. ​

We have a dedicated team of remote accountants to take care of your business no matter where you are, so you can focus on growing your business. We take out the ‘fluff’, break down the barriers and get things done. Looking out for you is what we are all about. Get started for free today.  ​