From the 2018 income year on there are two methods for calculating the business portion of a mixed-use vehicle:
- cost method based on actual costs, or;
- kilometre rate method, with that rate being set by the Commissioner of Inland Revenue.
The business portion of a vehicle's use must be well documented using either a logbook or actual records. You must record the odometer reading at the start of the financial year, and then again at the end of the financial year. This is required to determine whether the total mileage travelled during that year exceeds 14,000 km's.
If full records are maintained and the kilometre rate method is elected, the Tier One rate is used for the first 14,000 total kilometres, and Tier Two rates for any km's thereafter.
If no logbook is maintained, only the first 3,500 kilometres can be claimed at Tier One, and the remainder calculated at Tier Two rates, based on vehicle type.
The 2017/2018 kilometre rates are:
The Tier One rate is higher as it is a combination of vehicles' fixed and running costs; Tier Two rates include only the running costs.
The kilometre rate method may be elected for any mixed-use vehicle held at the beginning of the 2017/2018 income year, unless the vehicle is disposed of during that year.
Bear in mind! Electing the kilometre rate method is irrevocable - once selected, it will apply to that vehicle until it is disposed of.
See below for a flowchart to see it all in action or click here to download it as a PDF:
As always, we encourage you to contact us if you have any queries, or want to know how these methods for calculating business-use vehicle deductions affect your unique situation.