Motor Vehicles: What is claimable and what is not

Motor Vehicles: What is claimable and what is not

Author: Michael Levertoff

Bringing a vehicle into your business

Whether you already have a vehicle that you use in the business that is not currently on the books, or purchase a new vehicle, NZ Accounting can assist you in the process of introducing that vehicle into the business and recovering the appropriate amount of GST back on the purchase price as well as the ongoing associated costs.

Calculating the business portion of vehicle running costs

If you are a sole trader or in a partnership and you use your own vehicle in the business, you can claim the running costs for income tax.

If you use the vehicle strictly for business, you can claim the full running costs, without making any adjustments.

If you use the vehicle to travel from home to work, or any personal travel, you will need to separate the running costs of your vehicle between business and private use. (Travel between home and work is not classed as business use.)

When a company owns a car, it claims all the expenses without making a private use adjustment. However, the company must pay fringe benefit tax if the vehicle is available for employees' or shareholder-employees' private use. The company will also have to calculate GST on the fringe benefit (see our fringe benefit tax (FBT) section under Businesses).

Working out adjustments

If your vehicle is shared between personal use and business use, you may claim up to 25% of the vehicle running costs as a business expense by default. However, you could be asked to substantiate the percentage claimed.

If you wish to claim more than 25% of all vehicle costs, you must keep a logbook for at least three months every three years. You will need to record the distance, date and reason for the trip in the logbook. You can use the difference between the odometer readings at the start and end of the three months to work out the percentage of vehicle expenses you can claim.

FBT

The following general principles apply to fringe benefit tax on motor vehicles:

If a company owns a vehicle, as long as a vehicle is available for private use (for example, travel between home and work) by your employees, including shareholder-employees, you must pay fringe benefit tax. Your liability does not depend on whether the employees actually use that vehicle.

Sole traders or partners in a partnership are not required to pay fringe benefit tax on a business vehicle they use privately. However, they usually record their business use of the vehicle, as they must make an appropriate adjustment in their income tax and GST returns.

Inland Revenue Mileage Rates

Alternatively, you may use your logbook records to claim back Inland Revenue mileage rates on your vehicle.

GST

All GST paid on the purchase price and running costs of vehicles is claimable.

Depreciation

A vehicle's purchase price cannot be claimed in one lump sum. Vehicles depreciate over a number of years according to standard Inland Revenue rates.

It is important that you take this into consideration when purchasing a vehicle - because you'll be paying tax on the money you use to buy a vehicle in the year of purchase and claiming that money back in depreciation over a number of years. Make sure you've taken the tax you'll have to pay on that sum into account.

Financing all or part of the purchase price of the vehicle may be a better option than paying cash for your business vehicle.

sources: http://www.business.govt.nz/compliance/business-tax/business-income-tax/claim-business-expenses-for-the-use-of-a-private-vehicl
e | http://www.ird.govt.nz/business-income-tax/expenses/mileage-rates/
| http://www.ird.govt.nz/fbt/categories/motor-vehicles/

Michael Levertoff

Client Services and Delivery
NZ Accounting

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