As a tradesperson, it is likely that you use a vehicle to carry out your day-to-day work.
If you use your own vehicle, you can reclaim the business portion of the running cost of the vehicle.
Inland Revenue Department (IRD) wants to make it easier for you to file your tax returns.
You should be aware of the following.
If you are a sole trader, or in a partnership and you use your own vehicle every day, you can claim a portion of the expenses that you incur for running costs. These expenses include such costs as petrol, repairs, tyres, car registration and insurance.
If the vehicle you use is strictly for business, you can deduct the full running costs without making any adjustments.
It may sound easy.
However, if you use the vehicle to travel from home to work, or for any personal travel, you must separate the costs of your vehicle between business and private use.
Travel between home and work is not classified as business use.
There are three simple ways you can claim expenses.
Use a logbook to identify how much you use your vehicle.
To claim expenses for a vehicle used privately and for business, you must keep a logbook for three months.
IRD has a free logbook template online.
After three months, work out the number of kilometres travelled for your business and compare this figure to the total kilometres travelled. This is the percentage of your motor vehicle expenses you can claim against your income.
The general rule of thumb is you can use this percentage for three years before needing to keep a log book again for a further three months period.
Total distance travelled in three months: 2610 km
Distance travelled for business 360 km
(360 divided by 2610 x 100 = 13.8%)
You can claim 13.8% of your vehicle expenses as a business expense.
You can use the result of your three months’ recording to claim the business share of your vehicle expenses over the next three years, provided your business use of the vehicle does not change by more than 20%.
You should still keep records of the total vehicle running costs and record the total distance travelled for the income tax year.
If you do not keep a logbook, you may claim up to 25% of the vehicle running costs as a business expense. Please remember you could be asked to prove the percentage claimed so you will still need to keep a record of your vehicle expenses.
If your business travel is less than or equal to 5000 kilometres for the year, you can work out your deduction for motor vehicle expenses using the mileage rates of IRD or the Automobile Association.
The current IRD approved mileage rate is 77 cents per kilometre.
You must however maintain a record of all kilometres you travel for your business and calculate your deduction based on the current mileage rates.
Vehicle expenses are calculated differently for trading companies.
When a company owns a car, a logbook is not required and it can claim all the expenses without making a private use adjustment.
However, the company will be liable for Fringe Benefit Tax (FBT) if the vehicle is available for employees or shareholder-employees private use, including driving it to and from work. The company will also have to calculate GST on the fringe benefit. Some vehicles may meet the exemption criteria.
To find out more about claiming business expenses visit our website where you will also find easy to use calculators to help make tax simpler for you.
Abdul Rafik is Community Compliance Officer at Inland Revenue Department. He can answer readers’ queries, which should be sent to firstname.lastname@example.org
If you are setting up or run a charity, and would like to attend Inland Revenue’s free tax seminars and workshops held throughout New Zealand, please visit www.ird.govt.nz (‘Seminars’).