As a sole trader, you might use your car or other motor vehicle as part of running your business. And who wouldn’t appreciate some tax relief on that? Here’s our guide to understanding vehicle-related tax deductions and the records you need to keep to claim them.
Let’s get started!
- What motor vehicle expenses can you claim?
- How to claim car and other vehicle expenses
- How to claim the purchase of your vehicle
- Let Hnry drive (your tax admin)
What motor vehicle expenses can you claim?
You can only claim tax relief on expenses related to the business use of your vehicle.
Basically, if you’re using your vehicle in connection with your business activities, it might qualify as business use, and you may be able to claim expenses for it.
But there are limitations: Trips between your home and your place of work are classed by the IRD as personal travel, ruling out any deductions.
“Business use”
You may be eligible to claim a tax deduction for travel expenses in your vehicle when you:
- Travel from your usual workspace to another work location (for instance, a client’s office) while working.
- Deliver goods or fetch materials
- Attend work-related conferences or gatherings outside your usual location
- Commute between distinct job locations, especially if you have multiple roles
How to claim car and other vehicle expenses
You can choose from different methods to claim a tax deduction, depending on your vehicle type.
The IRD categorises vehicles by the type of fuel they use:
- Petrol
- Diesel
- Hybrid
- Electric
(We honestly aren’t sure what other types of fuels might be powering your vehicle, but if you’re driving a spaceship filled with deuterium and antimatter like the USS Enterprise, let us know!)
How you claim vehicle expenses will depend on what your vehicle runs on:
- If your vehicle is petrol, diesel, hybrid or electric you can use the mileage method or the actual costs method (more on these below)
- If you’re going the mileage route, you can’t claim your vehicle’s depreciation as it’s already included in this method!
- Different vehicle types are entitled to different mileage rates. Make sure you’re claiming the right rate!
- If your vehicle isn’t petrol, diesel, hybrid, or electric (???), then you must use the actual costs method.
Let’s take a deeper dive into each one:
Mileage method (petrol, diesel, hybrid, and electric vehicles only)
To use the mileage method, you’ll need to keep a logbook.
A logbook is a document that ‘logs’ relevant data regarding your business-related trips.
In your logbook, make sure you record:
- Where you’re going and why for each trip
- Odometer readings at the beginning and end of every journey
- Total distance in kilometres you’ve travelled
- Odometer readings for the beginning and end of the logbook period.
Claiming mileage
The IRD provides kilometre rates each year for you to claim for the business use of your vehicle. You’ll need to double check you’re using the right rates for the financial year you’re claiming for.The Tier 1 rate covers both fixed and running costs for the business-related use of the 14,000km of your vehicle’s annual travel, which includes personal trips too.
The Tier 2 rate is used for any business-related travel over 14,000km, and only covers running costs.
Actual costs method
To claim actual costs, you’ll need to keep a logbook for 90 consecutive days (as covered in the last section) and keep:
- Receipts for fuel
- Receipts for other car-related costs, such as
- registration,
- insurance,
- lease payments,
- repairs,
- interest charges (phew!)
💡Note: If you don’t keep a logbook, you can only claim 25% of your vehicle’s running costs.
Your logbook needs to show the reasons for all business travel, and the distances of all work and personal trips. It should cover a minimum of 90 consecutive days and represent your typical vehicle usage in a financial year.
After you’ve completed your logbook, you need to work out the percentage you used your vehicle for business, based on the information you collected:
- Determine the total distance in kilometres you travelled during the logbook duration.
- Identify the business-related kilometres within that time frame.
- To find the business usage percentage, divide the business-related kilometres by the total distance and multiply by 100.
Once you have your business-use percentage, you can claim that percentage of all your vehicle expenses, including running costs and depreciation. Easy!
Finally, you can use your logbook calculation for three years, provided the proportion of business use doesn’t increase by more than 20%. After three years you’ll need to start a new logbook.
How to claim the purchase of your vehicle
💡 Note: If you’re using the mileage method to claim vehicle expenses, you can’t double-dip by also claiming the vehicle’s purchase. It’s already baked into that deduction!
You can claim the cost of your vehicle in two ways:
- Expense under low value asset threshold
- Depreciation
Low value asset threshold
Since 2021, the low value asset threshold has been $1,000. So if your vehicle costs $1,000 or less (an absolute steal!), you can claim its entire cost immediately as an expense.
Depreciation
Assets like vehicles decrease in value over time. This reduction is called depreciation. If you paid more than $1,000 for your vehicle, you’ll need to claim depreciation on the purchase.
Depreciation rates vary according to the methods used, the type of vehicle you have, and the business use percentage. The IRD’s depreciation calculator can work this out.💡Note: You can still only depreciate your business-use percentage of the purchase of your vehicle. For instance, if your business use of a $60,000 car is 80%, you can claim depreciation on $48,000 (80% of $60,000).
Tricky stuff, right? It’s best to consult professionals on this. Like Hnry - it’s exactly what we’re here for, to make those depreciation calculations for you.
Let Hnry take the driver’s seat (for your expense claims)
Trying to get your head around tax deductions is like navigating through a maze without a map. Why get stuck with numbers when Hnry can cruise through them effortlessly?
We’re an award-winning app specifically for sole traders, so we get you. With Hnry at the wheel, you can relax, knowing we’ll take care of all the complicated calculations and ensure you get back every dollar that you’re entitled to.
For just 1% + GST of your self-employed income, capped at $1,500 a year, Hnry will calculate and pay all your taxes, levies and whatnot for you, including:
Let Hnry take the driver’s seat on your tax admin, so you can focus on what you do best – the actual work.
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