Motor vehicle expenses are one of the most common deductions small business owners claim, and one of the most scrutinised by IRD in audit situations. If you cannot demonstrate a properly kept logbook, your vehicle claims are at risk, regardless of how legitimate those claims actually are.
Why vehicle logbooks matter
IRD allows business owners to claim vehicle expenses where the vehicle is used for business purposes. However, to substantiate the business use percentage, a logbook is required. Without one, IRD can disallow or significantly reduce the claim. This is a firm IRD position and is consistently applied in compliance checks and audit reviews.
What IRD requires in a vehicle logbook
According to IRD guidance, a vehicle logbook needs to record:
– The date of each trip
– The distance travelled
– The reason for the trip (business or private)
– The odometer reading at the start and end of each trip
A logbook needs to be kept for a continuous 90-day test period. The business use percentage calculated from that period can then be applied to vehicle expenses for the following three years, provided your usage pattern remains broadly the same. After three years, a new 90-day test period is required.
Source: IRD guidance on motor vehicle expenses is available at ird.govt.nz.
Common mistakes that create problems
Travel between home and your usual place of work
IRD treats travel from your home to your regular place of work as private travel, not business travel. Once you are at your place of work and travelling to clients or other business locations, that travel is generally claimable. If you work from home, travel to client locations is generally on-work travel and claimable, but document it clearly.
Claiming 100% business use
It is very difficult to sustain a claim of 100% business use unless you have a dedicated work vehicle that is never used privately. Making a realistic private use adjustment is far more defensible than claiming full business use and having it challenged.
Not keeping the logbook contemporaneously
A logbook filled in retrospectively is not a logbook. IRD expects records to be kept at the time of travel. A logbook that is clearly completed after the fact will be treated with scepticism.
Practical tips
– Keep the logbook in the vehicle so it is there when you need it
– Many accounting software providers offer digital logbook options — check what is compatible with your current setup
– Set a reminder three years from your last test period to complete a new 90-day log
– Be realistic about private use and document it honestly
What happens if you do not have a logbook
In a compliance review or audit, IRD will ask to see your logbook. If you cannot produce one, they have the ability to disallow the vehicle claim entirely or apply a default business use percentage that may be significantly lower than what you have been claiming.
Questions about your vehicle claims?
If you are unsure whether your current logbook arrangement meets IRD requirements, or if you have had vehicle claims questioned in the past, we are happy to take a look at your situation.
Contact us today or call us on 09 415 2334