In December 2020 IRD released the kilometre rates for the 2019/20 income year.
|2019/20 Kilometre Rates|
|Vehicle Type||Tier One Rate||Tier Two rate|
|Petrol or Diesel||82 cents||28 cents|
|Petrol Hybrid||17 cents|
If the 2020 tax return has already been filed, a request can be made to amend the tax return for the new rates however the cost benefit of doing so should be considered first.
Kilometre rates for employee reimbursement
When an employee uses their private vehicle in their employer’s business, the employer is able to pay the employee a tax-free reimbursement for the actual costs of the business use of the vehicle. As this can be difficult to quantify, employers typically base the reimbursement on the IRD’s kilometre rates.
If the employee keeps a logbook, the Tier One rate applies to the first 14,000 km of business use in an income year. For business use in excess of 14,000 kms, the Tier Two rate applies based on the type of vehicle. If the employee doesn’t keep a logbook, the Tier One rate is limited to the first 3,500 kms of business use, with the Tier Two rates used for kilometres in excess of 3,500. Given these thresholds need to be determined, a logbook should be maintained anyway.
Kilometre rates for self-employed and close companies
When a person uses a motor vehicle for both business and private purposes, they can be reimbursed for the cost of the business use. Business use can be determined by either using actual costs, or keeping a log book and using the IRD’s kilometre rates. The method chosen needs to continued to be applied to the vehicle while it is used for business use.
When the kilometre rate is used, no additional deduction for depreciation can be claimed as it has already been factored into the kilometre rates.
As for employee reimbursements, when a log book is kept, the Tier One rate applies to the first 14,000 km of business use, and the Tier Two rates apply for business use in excess of 14,000 kms. When a log book is not kept, again the Tier One rate is limited to the first 3,500 kms of business use, with the Tier Two rates used for kilometres in excess of 3,500 kms.
If you have any questions, please contact your Hayes Knight advisor.