New Mileage Rate Method Announced
A new mileage rate method has been announced by Inland Revenue.
Every year the department sets out the rates for various categories of vehicles that are used for business purposes and for personal use.
To date there have been two options.
- The ‘Kilometre Rate’ method, often referred to as the IRD mileage rate, or;
- The Costs Method where actual mileage is recorded using a logbook.
The IRD has introduced a new method from the 2018 income year (1 April 2017 – 31 March 2018).
Two Tier Scale for Kilometre Rate Method
The new method eliminates the 5000 kilometre cap and introduces two tiers.
The kilometre rate method had a cap of 5,000 kilometres per year prior to the 2018 income year. This cap has now been removed.
The first tier covers business travel up to 14,000 kilometres, and the second tier covers travel over 14,000 kilometres.
You should record your odometer figure every year on 31 March. The reason for this is to determine if you have exceeded 14,000 kilometres in any income year.
Once you have decided to use the Kilometre Rate Method, you can’t chop and change. Once you elect to use this method, you must continue to use it for as long as you own the vehicle. You could, however, use the alternative method with another vehicle as the method you elect to use is on a per vehicle basis.
In addition, no depreciation is allowed.
For the 2018 year, the rate for the first tier of up to 14,000 kilometres is 76 cents per kilometre.
Over 14,000 kms, the amount that can be claimed reduces and varies depending on your vehicle type. For a petrol or diesel car, the rate is 26 cents per kilometre. For a petrol hybrid car, it’s 18 cents per kilometre and for an electric car, it’s 9 cents per kilometre.
UPDATE: The 2019 mileage rates have been announced. To learn more, click on the link here.
Alternatively, you can opt to use the Cost Method. This involves keeping a log book.
The log book must be kept for a period of 90 days and lasts for three years.
How do you use a Log Book?
Log books are available through any commercial stationery supplier.
You would record the opening odometer figure on day one.
You then record only business travel for a period of 90 days. You must record the date, reason and distance for each journey. . Note that only business travel is required.
Once 90 days is up, you record the closing odometer figure and deduct that from your opening odometer figure to work out total mileage
Then you would add up all the business mileage. Once you have that figure, divide it into your total mileage figure to give you a percentage. This is the amount you can claim for business mileage for the next three years, assuming that your travel patterns do not change markedly.
Once the exercise is completed, make sure you store the log book safely for at least seven years.
In the absence of a log book or data to base the kilometre method on, 25% of running costs may be claimed so long as you can justify this.
More information is available on the methods from the Inland Revenue Department site here.