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Get the Champagne Out – IRD Increase Mileage Rate!

Using the IRD mileage rates is a useful and straightforward way of getting a deduction for motoring costs for both the self-employed and shareholder-employees but unfortunately the IRD are very stingy when it comes to setting the rate. Whilst in theory the rates are subject to regular reviews in order to reflect the actual cost of running a vehicle, in reality they have not changed very much over the years, despite the huge increase in petrol price rises over the last 10 years!

The good news is that the Inland Revenue has however just increased the rate from 74 cents per kilometre to 77 cents per kilometer for the 2012 income year (i.e. 1 April 2011 to 31 March 2012, for those with a standard balance date). This change is applied retrospectively to assist taxpayers who are required to file a return of business income, so that the rate reflects the average motor vehicle operating costs for an income year. If you’ve already filed your return for that year claim the difference next year!

The revised rate applies to both petrol and diesel vehicles (irrespective of engine size), but not for motorcycles. These mileage rates can be used to calculate non-assessable motor vehicle allowances paid by an employer to an employee. The rates also apply in respect of self-employed taxpayers for work-related travel up to a maximum of 5,000 kilometres each year.

Think the 77 c per kilometre is still mean? Employers may choose not to use the IRD’s prescribed mileage rates and instead use an alternate method (such as actual costs or log book method) to make a reasonable estimate of costs when they reimburse employees for the use of their private vehicle for business-related travel.

Or you can use an alternative rate that has been published by a reputable source, for example the New Zealand Automobile Association Incorporated. The problem here is that the rate varies on your overall mileage, so this gets a little complicated.

Reflect on this strange but true fact; the two most common tax deductions, motoring and use of home for business, are the two of the most complicated areas in tax!

To get help with your motoring deductions contact Nick on 0800 ASK NICK or email nick@abac.co.nz.