Continuing the series of articles making tax filing life easier for all the self-employed/freelancers/side-hustlers out there – today we’re going to look at how to claim motor vehicle expenses for you lot!
You have a car right?
You use that car to get to places you need to be to get your work done right?
Cooooool.
If you use that car 100% ONLY for business use, then you can claim 100% of the costs associated with running that car. These costs can include fuel, rego, WOF, repairs, car washes, etc. This means that you have registered the car as a business asset which is only for business use – which means you can claim depreciation on it as well!
Wait, what’s that?
You use the car for personal stuff too? Like sending your kids to school, going out to town with your friends and trips to the beach?
Oh, well, you can’t be claiming 100% of the costs associated with running that car then! You will have to choose one of the following methods, as prescribed by the IRD:
Method No. 1: Use a logbook!
Use a logbook to track your vehicle’s movements. To use a logbook you must:
- Download a logbook template
- Put in the starting value of your vehicle’s odometer at the start of the 90 days
- Log every business related travel for the next 90 days – keep track of those KMs!
- Put in the ending value of your vehicle’s odometer at the end of the 90 days
Once you have all that information down, you can work out the % of business use associated with that car. Once you work out the %, you can start using that % to claim all costs associated with that car such as (there is a handy box at the bottom of the logbook template that allows you to put in the total costs for all these expenses):
- Fuel
- Repairs
- Insurance
- WOF
- Rego
You know I love examples right? So imma give you one right now:
Mattias runs a small painting business and he uses his ute to get around to his clients’ places. Mattias keeps a logbook for his ute. At the start of the 90 days – his ute’s odometer was 50,000 kilometres. During the 90 day period, he logged in about 20,000 km worth of business travel. At the end of the 90 day period – he recorded his odometer as 100,000 km.
This means that Mattias travelled 50,000 km (100,000 minus 50,000) in total during that 90 day period in his ute. Out of this 50,000 km, 20,000 was for business use. So his business use % is:
20,000/50,000 X 100 = 40%
This means that Mattias can now claim 40% of all costs associated with his vehicle (the ute). This 40% claim rate is usable for up to 3 years from the date he completes his logbook. Which is really cool because he only needs to put in the work of keeping the logbook for 90 days every three years.
At the end of the financial year, Mattias spends about $10,000 on his ute on fuel, repairs, insurance, etc. Using the 40% calculated earlier he can claim 40% of that $10,000 as a business expense under the motor vehicle expense category which is $4,000.
Logbooks are easy and simple. Note that if you plan to claim 100% of the vehicle’s running cost – you need to have a log book to back up your claims as well – so whatever it is, always keep a logbook! Speaking of evidence, you should keep a receipt and record of all vehicle related expenses so you know exactly what you are claiming for and you have the documents to back up your claims.
If you don’t have a logbook, you can only claim up to 25% of that vehicle’s operating costs.
IMPORTANT: In working out the business travel portion – it is important to note that travelling from home to your regular workplace and back is not considered to be ‘business travel’. Why is this? The reasoning being that people on PAYE wages don’t get to claim on their travel to work expense – why should you? It is worth noting however that if you travel from a client’s location to another client’s location, you can claim business travel and if you are travelling outside your local area for business purposes (IE travelling from your home in Hamilton to go to Auckland for work at a client’s place) you can claim business travel as well.
Method No.2: Claim actual costs for business use
Instead of using a % of all costs associated with your vehicle use – you can claim for the EXACT costs that you spent on your vehicle for business AND ONLY business use.
Now, straight away you can tell that there is going to be some issues with this method of claiming, simply because how do you justify costs like WOF and rego to be ONLY for business use when the vehicle in question is going to be used for private purposes as well. You might be able to claim for petrol… and maybe parking fees… but you would be missing out on other maintenance costs associated with running the vehicle.
So save yourself some heartache – use a logbook. Seriously. Do it.
Method No. 3: Kilometre Rate
While this method sounds good on paper – in practice it is quite complicated. The idea is that you get charged a flat rate of 79 cents (as of the 2018/2019) year for the business portion of the first 14,000 km that a vehicle travels in a year.
Read that again, properly.
79 cents per KM for the BUSINESS portion of the first 14,000 km traveled (in total – so this includes private use as well) that a vehicle travels in a year. This means that if you traveled 5,000 km worth of business travel in the first 14,000 km in a year, you can claim 79 cents for each of those km traveled. Any additional business travel beyond the 14,000 km threshold will be charged at a different rate called the tier 2 rate which you can find on the IRD website here.
From a practical point of view, you will still need to keep a logbook to claim the kilometre rate. What’s more, the implication is that you need to keep a logbook for the WHOLE YEAR (instead of the 90 day period) because, how else will you know what portion of the first 14,000km during the year spent is spent on business travel.
So yeah, again, save yourself some heartache – use a logbook, calculate the % from the 90 days and use that as your % business claim.
If you have gotten to the end of this article and suddenly realised ‘oh, dang! I don’t have a logbook and I want to file my returns now’ the only option you have is to claim 25% of all costs spent on your motor vehicle for the past year. This year, be sure to use a logbook – chances are that you can end up claiming a lot more.
So yeah – download your logbook from the IRD website here, if you haven’t already.