Where taxpayers use their motor vehicle for both business and private purposes, the kilometre rate method has been one of two permissible methods used to calculate the expenditure that is deemed to relate to the business use of the vehicle.

The second method is to use the actual costs of running the motor vehicle, this method being known as the “cost method”.

A favourable new two-tier motor vehicle kilometre method is available in respect of a taxpayer’s 2017/18 and future income years.

It replaces the old rate method that was only available for up to 5,000km of a vehicle’s business usage. There is no kilometre usage limit under the new method.

The new method is applied in two tiers: a $0.76 rate is applied to the first 14,000 kms travelled with a lower rate applying to kilometres travelled in excess of 14,000 kms. The second-tier rates are $0.26, $0.18 and $0.09 for petrol/diesel, petrol hybrid and electric vehicles respectively.

The rates are set by the IRD by reference to industry figures that represent the average cost of operating a motor vehicle.

Taxpayers must elect to use the method on a vehicle-by-vehicle basis. They are deemed to have elected by using the method in their tax return. Once the method has been elected it must be used until the vehicle is disposed of.

Taxpayers are not obligated to use the new method and can instead use the cost method. However, the method chosen must be used until the vehicle is disposed of.

Businesses can also use the kilometre method to calculate the amount to reimburse staff who have used their private motor vehicles in the business.

For the 2018/19 income year, businesses can reimburse staff at the $0.76 per km first tier rate, regardless of the number kilometres travelled by staff in that year. However, from the 2019/20 year businesses must use the two-tier rates.

Please contact your Ingham Mora accountant or Grant Neagle on 07 927 1225 if you require further information.

Grant Neagle