The essential guide for business vehicles

Kiwi business owners frequently enquire about business vehicles. In this guide, we’ll explore some key questions around this topic: from leasing vs buying a business vehicle, business vs private use, deducting vehicle expenses for business to record keeping.​

When it comes to getting a business vehicle in New Zealand, you can either lease it or buy it. Both choices have different cash flow and tax effects to think about. ​

Leasing means you pay a set amount each month, and you don't have to pay a big sum upfront. These monthly payments can usually be fully deducted as business expenses, which can lower your taxes at the end of the financial year. It’s a good option if your business doesn't have a lot of cash on hand or if you don't want to deal with owning a vehicle. It’s worth noting that you should check your contract carefully because you’re usually tied in for a set period of time and they’re difficult to break if your situation changes.  ​

On the other hand, buying a vehicle means you own it, and its value can be included as part of your business assets. You could also deduct the cost of the vehicle losing value over time from your taxable income (this is called Depreciation and is tax deductible). However, buying a vehicle requires a larger upfront investment.Another plus side is that because you own the vehicle you can choose to sell it and receive money back whenever you want to - you’re in complete control.​

The choice between leasing and buying depends on your business's financial situation, how much you drive, and what your plans are for the future. If you’re not sure which option you should choose, it’s best to consult your accountant and understand the tax implications. If you’re not working with an accountant, register today and you’ll get a team of experts that take care of you and your business. ​

Depreciation is a way of spreading out the cost of a business vehicle over its useful life. The vehicle’s wear and tear can be claimed as a tax deduction. For example, if you buy a van for your business, you can't claim the entire cost as a tax deduction in the year you bought it. Instead, you claim a portion of the cost each year, reflecting the van's decrease in value. The specific amount you can claim each year depends on the type of vehicle and the depreciation method* you use.​

To calculate how much you can claim as tax deduction, get in touch with your accountant. ​

*There are 2 ways to calculate depreciation: diminishing value (DV) and straight line (SL). ​

Read more: What is depreciation and what’s it for?​

Using a vehicle for both business and private purposes has specific tax implications. If you use your vehicle solely for business, you can claim the full running costs (e.g., fuel, insurance, depreciation etc) as a business expense. ​

However, if you use it for both business and personal purposes, the situation becomes more complex and you need to allocate costs correctly. For instance, if a vehicle is used 70% for business and 30% for private use, only 70% of the total expenses can be deducted. You may also be liable for fringe benefit tax (FBT) if the vehicle is owned by a company and you provide a vehicle for private use.​

If you provide a company vehicle to your employees for private use, you may be liable for Fringe Benefit Tax (FBT). This is a tax on the benefit your employees receive from using the vehicle for non-work purposes. The amount of FBT you pay depends on factors like the vehicle's value and how much it's used privately. ​

There are 2 ways to calculate FBT: the cost method or the market value method. ​

It's important to note that if you use the vehicle yourself for private purposes, you may also be liable for FBT on that portion of use. ​

Read more: What is fringe benefit tax (FBT)?​

If your business is registered for GST, you can claim back the GST paid on purchasing vehicles. You might also be eligible to claim GST when selling the vehicle.​

To determine the amount to claim, estimate the proportion of business vs personal use of the vehicle. It’s worth noting this ratio may vary and impact the GST you owe or can claim back, so you might need to adjust your calculations accordingly. ​

If you are unsure about how GST works or how to calculate how much GST you need to pay/claim back, contact your accountant. ​

Read more: The basics business owners need to know about GST​

You can choose to use either the logbook method or the actual costs method to calculate your motor vehicle expenses. For vehicles used exclusively for business, the process is straightforward – all expenses could be tax deductible. However, there will be more complexities if your vehicle is mixed-used. Talk to your accountant if you are not sure which method to choose or how to calculate your motor vehicle expenses.​

Read more: What motor vehicle expenses can I claim for my business?​

Accurate record-keeping ensures your compliance with tax regulations, it also helps in maximising tax deductions and maintaining clarity. ​

In New Zealand, there are 3 primary methods for vehicle record keeping:​

If you’re willing to know more about record keeping, contact your accountant or head to IRD’s website to check out their guide on vehicle expenses.​

Hiring an accountant to handle your business's taxes can feel like a weight lifted off your shoulders. Tax laws are a bit of a maze, so a good accountant can guide you through the ever-changing tax landscape and make sure you don't miss any deductions or end up with any surprises from IRD. At Beany, we can handle your taxes -  everything from income tax returns to GST returns and PAYE, so you can focus on what you do best – running your business. Contact us or register today.​