Quick answer
You can claim business vehicle costs using the IRD kilometre rates: for petrol, $1.20 per kilometre (tier one) for the business share of the first 14,000 km the vehicle travels, then 37 cents (tier two) above that. Diesel, hybrid, and electric have their own rates. Tier one combines fixed and running costs; you need a logbook to establish your business-use percentage.
Are vehicle expenses tax deductible in New Zealand?
The business use of a vehicle is deductible; private travel, including ordinary commuting between home and your regular workplace, is not. Travel between worksites, to clients, or to a temporary workplace counts as business use. Where a vehicle is used for both business and private purposes, you deduct only the business proportion.
Sole traders and close companies can use the IRD kilometre rate method or claim actual costs. See the wider New Zealand expense rules for how vehicle claims sit alongside GST and other deductions.
How much can you claim?
The kilometre rates for the 2025-26 income year are set per vehicle type. Tier one covers the business share of the first 14,000 kilometres of total travel and reflects both fixed costs (insurance, licensing, depreciation) and running costs. Tier two covers running costs only and applies to the business share of kilometres above 14,000.
| Vehicle | Tier 1 (first 14,000 km) | Tier 2 (above 14,000 km) |
|---|---|---|
| Petrol | $1.20 | 37c |
| Diesel | $1.30 | 38c |
| Petrol hybrid | 90c | 24c |
| Electric | $1.22 | 23c |
Worked example. A petrol vehicle travels 18,000 km in the year, of which 60% is business (10,800 business km). The first 14,000 km of total travel attract tier one, so 60% of 14,000 (8,400 km) is claimed at $1.20, which is $10,080. The remaining 4,000 km of total travel attract tier two, so 60% of 4,000 (2,400 km) is claimed at 37c, which is $888. The total deduction is $10,968.
Record-keeping requirements
To use the kilometre rate method you need a record of your business kilometres and a logbook to establish your business-use percentage. The IRD accepts a logbook kept over a representative period of at least 90 days, and that percentage can then be used for up to three years unless your pattern of use changes. Business records must be kept for seven years. If you use the actual cost method, keep all your vehicle receipts as well.
How to claim, step by step
- Confirm the travel is business use, not private commuting.
- Keep a logbook for a representative 90-day period to set your business-use percentage.
- Apply that percentage to the vehicle’s total kilometres to get your business kilometres.
- Apply tier one to the business share of the first 14,000 km, and tier two above that.
- If you are GST registered, claim GST on actual running costs at the business-use percentage, separately from the income tax kilometre claim.
- Record the deduction and keep your logbook and records for seven years.
Common mistakes
- Treating the 14,000 km threshold as a business-km cap. It is a total-travel threshold that switches you from tier one to tier two.
- Claiming GST on the kilometre rate, which is an income tax figure only.
- Using the kilometre rates without a logbook to support the business-use percentage.
- Claiming home-to-work commuting as business travel.
- Carrying an old logbook percentage past three years or after your use has clearly changed.
Software that helps
The business-use percentage is only as good as the logbook behind it, and a logbook reconstructed at year end rarely holds up.
- Driversnote records trips by GPS and produces an IRD-compliant logbook.
- ExpenseFlow captures fuel, servicing, and registration receipts as they arrive, codes each with the correct GST treatment, and syncs them to Xero so the actual-cost records behind a vehicle claim are in one place.
- Hnry handles vehicle claims for sole traders alongside their tax.
FAQ
See the answered questions above for the 2025-26 rates, the 14,000 km threshold, the logbook, GST, and commuting.