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One of the most popular questions we’re asked here at Markhams is can I claim my motor vehicle expenses? Motor vehicles are a common business asset and running costs can be significant.

Sole Trader and Partnerships

If you are a sole trader or partnership and you use a motor vehicle for business purposes, you can claim that portion of all associated costs such as fuel, repairs, insurance, leasing expense. You must keep a log book for three months every three years to justify the business use percentage. If you do not keep a log book, you can only claim 25% of vehicle costs.

A point to note is that travel to and from work is private usage – not business.

If the vehicle is available for private use by an employee, (such as taking it home) then Fringe Benefit Tax (FBT) must be paid on the value of the vehicle, whether leased or owned. The only way of avoiding FBT is for the vehicle to be:

1. Work related, such as being a ute (or twin cab) or if the back seats are permanently fixed down; and

2. The business name must be permanently affixed to the vehicle; and

3. A letter must be given to the employee advising that the vehicle is not to be used privately (copy to be kept).

Companies

More commonly trading takes place through a company. The apportionment rules above do not apply to companies.

Also, shareholders are deemed to be employees for FBT purposes. In other words, if the company owns the vehicle, and you the shareholder uses it privately, the FBT rules above apply as if you are an employee

Reimbursement

So what if the company (or sole trader / partnership) does not own the vehicle, but it is used for business purposes? A reimbursement from the business can be paid. There are two methods of doing this:

1. A mileage allowance can be paid by the business. For a 2 litre car, 85 cents per kilometre is paid (using published AA rates) on the first 3,000km of business usage, then 19 cents on a remaining 2,000 km; or

2. The business percentage of running costs is reimbursed.

For both of the above a log book must be kept permanently and GST on the costs cannot be claimed. Also, for both methods, the business usage is capped at 5,000 km.

As a final point, if your vehicle has a low value, it often works to pay FBT on the low value, and get to claim 100% of costs!

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Markhams are Chartered Accountants and Business Advisors. They’re a New Zealand network of Chartered Accountancy firms located around the country, providing financial and accountancy services to a wide range of clients.

For more information or specific advice, you can contact Sam or Jess, or visit the Markhams website.

Sam Basset: Phone (09) 306 7103 or email sam.bassett@markhams.co.nz

Jess Galyer: (09) 306 7109 or email jess.galyer@markhams.co.nz

All information in this article is to the best of the Author’s knowledge true and accurate. No liability is assumed by the authors, or publishers, for any losses suffered by any person relying directly or indirectly upon this article. It is recommended that clients should consult a senior representative of the firm before acting on this information. The member firms practicing as Markhams are independent and not in partnership.