Reimbursements to Employees for Vehicle Running Costs

Inland Revenue Department has issued a standard rate to use when reimbursing an employee for travel where the employee uses their own vehicle. The rate has been calculated taking into account a number of factors including:

Inland Revenue Department has issued a standard rate to use when reimbursing an employee for travel, where the employee uses their own vehicle.
The rate has been calculated taking into account a number of factors including:

  • Running costs
  • Depreciation
  • An interest content for borrowing to buy a vehicle

The standard rate is currently 70 cents per kilometre.  This is irrespective of the type of car or the size of its engine.
The use of the published IRD rate can be used for any number of kilometres in a year.  In other parts of the legislation there is a 5,000km limit – however not in relation to employee reimbursement.  If however the employee is being reimbursed for a large number of kilometres care does need to be taken that the amount of the reimbursement is not ‘unreasonable’ when considered in relation to actual costs.  Any excessive reimbursement can be deemed to be taxable income to the employee.
It is also possible to use published mileage rates from other organisations (for example, the AA).  The rates must be a reasonable estimate of costs.

Another alternative is to reimburse what the employer considers to be a reasonable estimate of actual expenditure incurred by the employee.

For a full customised report on The Systems Required to Obtain a Taxation Deduction for Motor Vehicle Expenses contact info@middletonholland.co.nz

Motor vehicle reimbursement allowances

1 to 5,000 km – 70c per km

Self employed – Can use 70c per km up to a maximum of 5,000 km of work related travel per year. Alternatively or when in excess of 5,000 km, actual expenses can be reimbursed. An individual special rate can also be determined based on cc rating and estimated travel. An alternative reimbursement rate (e.g. AA) is now also permitted which is generally higher than the above