Tax & Motor Vehicles

Depending on how sick we get of typing “Fringe Benefit Tax” this might be the first in a series on Motor Vehicles in businesses.  In the series we will cover:

  • Ways of calculating Fringe Benefit Tax
  • How often you should purchase a new vehicle
  • Leasing versus buying a vehicle


However that’s far too much for this post.  Here we’re looking to provide a summary of the different options available to get employees around town to complete their responsibilities.  The three most popular are:

  • Company owned vehicle, pay fringe benefit tax
  • Personally owned vehicle, pay a mileage rate
  • No owned vehicle, pay Uber

There are others, so please consult your accounting and tax professional before any expenditure decisions.


Company Owned Vehicle

If your company owns a vehicle, deductions available are for general running costs like petrol, insurance, and repairs & maintenance.

However if its available for personal use, you’ll need to pay tax on the benefit provided to the employee (done using an IRD calculator), usually at the employees marginal tax rate.  Employees that are provided vehicles usually fall in the higher tax bracket so this will likely be 49.25% of the benefit.  While this seems high, it works out to be 33% of the tax inclusive total (a $10,000 vehicle benefit provided + FBT of $4,925 = $14,925, of which the tax is 33%).

You’ll also need to pay GST on the benefit provided to the employee. While it seems like a lot of tax to pay, it’s usually offset by the availability of GST and Income tax deductions for the expenses above.  If you’re looking to provide a vehicle for an employee its advisable to talk it through with your tax preparer.


Personally Owned Vehicle

On the other hand if the employee was to provide their own vehicle, you could pay them a mileage rate of 77 cents per km travelled for business.  This is easily accounted for in Xero, and works out to be a favourable rate for use of a personal vehicle.  An example will be an employee travelling from work to a clients office 10km away - they could claim 20km for the round trip at the 77 cent rate ($15.40).


No Owned Vehicle

You could also look to outsource local travel, and use a company like Uber to get your employees around town.  The benefits include gains in time spent looking for parking, no car parking needed to be offered at your premises, and you’re not on the hook for your employees treating the company car like a "rental”!  Employees can easily use their own Uber account and claim the expense in Xero.


So there you go, three popular methods explained while trying to keep you awake!  Remember there are a few more options so its best to talk it through with your tax preparer in the planning stages.  If you have any questions regarding tax on motor vehicle or any other matters please give us a call.


Disclaimer: Information provided to the best of the authors knowledge at time of publication.  Laws are subject to change and independent advice should be sought before considering an investment decision.  The above information is general in nature and should not be construed or relied on as a recommendation.


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