Currently most companies who provide motor vehicles for the private use of shareholder-employees have to pay Fringe Benefit Tax (FBT) on the value of the motor vehicle. The value is based on the availability of the vehicle rather than usage which often means higher tax costs.

From 1 April 2017, most small companies have a new option

These companies can now elect to use the same method as partnerships and sole traders. This method is based on how the vehicle is used.

There are two new options available to certain small companies:

Business Portion of expenses for vehicles purchased by the company after 1st April 2017
Establish the business/private use of the vehicle. This is usually done by holding a log book recording both business and private usage for 3 months. This needs to be done every 3 years, unless usage dramatically changes. Business kilometers traveled divided by total kilometers traveled = the percentage of all vehicle costs that you can claim as a tax deduction.

There are exceptions to the above so please contact us before considering these options.

Mileage Claim (for vehicles not owned by the company)

  • Record opening odometer reading at the start of your financial year
  • Calculate the total number of kilometres travelled for three months when using the vehicle for business purposes
  • Record closing odometer reading at the end of the 3 months.
  • The business usage therefore is business kilometres divided by total kilometres travelled in that 3 month period. This becomes your business percentage.
  • The amount you can deduct as an expense is a combination of:
    • The proportion (as a percentage) that the vehicle is used only for business x Inland Revenue's first tier rate (this is currently 72c / km but is subject to change). This calculation is used for the first 10,000 kms of travel usage; and
    • For every kilometre over 10,000, the proportion of business use (as above) x Inland Revenue's second tier rate.
What you need to do
  • Make a diary note to do this again at the end of the following financial year
  • Keep a log book, recording vehicle usage. You can do this for a minimum of 3 months in a year and use this as an estimate for the total year.
  • When you send your financial information to us, you will need to include the proportion of business use information.

If you are in any doubt about what to do and what is best in your situation, please contact one of our team on 407 7117.