If you use your vehicle solely for business purposes, you could claim the full running costs as a business expense at tax time. But if you use your vehicle for both business and personal reasons, you can claim only a portion of the total costs.

These calculations can be complex if you’re not sure what to look for, so we’ve put together a step-by-step guide to help.

Note: This information is general in nature and does not constitute tax advice; please consult a qualified professional for advice specific to your circumstances.

How to keep a vehicle logbook

Claiming business vehicle expenses starts with keeping a logbook. According to the Inland Revenue Department (IRD), your logbook should record:

  • The start date and the vehicle’s odometer reading on that date.
  • The date, distance and reason for each business journey across a 90-day period.
  • The end date of the 90-day period and the vehicle’s odometer reading on that date.
  • Any other information the IRD might need to process your claim.

You can use the IRD’s template, or a vehicle logbook app to automate the process. Digital records can make life easier at tax time.

Use the logbook to calculate the total distance your vehicle has travelled and the distance driven for business purposes, then use those numbers to calculate the percentage of work-related travel:

(Distance travelled for business / Total distance travelled) x 100 = Percentage of vehicle use for business

For example, if you travelled 5,000 km over the 90 days, and 3,500 km of that was for business, your percentage of vehicle use for business purposes would be:

3,500 km / 5,000 km x 100 = 70%

Logbooks remain valid for three years, as long as the vehicle’s business use doesn’t change by more than 20% in that time.

It’s important to keep an accurate logbook to justify the work-related percentage of your vehicle use to the IRD. Without one, your ability to claim deductions may be significantly limited.

Once your logbook is sorted, you can choose between two methods to calculate tax deductions: the kilometre rate method and the actual costs method.

Note: If you run a company with shareholder-employees, different rules regarding Fringe Benefit Tax (FBT) may apply. Please consult a professional tax advisor in these circumstances.

The kilometre rate method

With the kilometre rate method, you use per-km rates and your logbook to calculate the total claim for your vehicle’s business use.

There are two rates:

  • The tier-one rate covers a vehicle’s fixed and running costs. This applies to the business portion of the first 14,000 km of a vehicle’s total travel (business and personal) across the financial year.
  • The tier-two rate covers running costs only for business travel beyond the first 14,000 km.

The IRD typically publishes these rates in May each year. The rates below apply to the 2024/2025 income year (for returns being filed in 2026):

IRD rates for the 2024-2025 income year

Vehicle Tier one per km Tier two per km
Petrol or diesel $1.17 $0.38
Petrol hybrid $1.17 $0.25
Electric $1.17 $0.20

To calculate your deduction, work out the amount for each tier using the following formulas, then add them together:

  • Tier-one deduction: (First 14,000 km x Tier-one rate) x Business use %
  • Tier-two deduction: (Kilometres over 14,000 x Tier-two rate) x Business use %

Example:

If your diesel vehicle travelled 30,000 km total across the financial year, and your logbook showed 60% was for business use:

Tier one: 14,000 km x $1.17 x 60% = $9,828

Tier two: 16,000 km x $0.38 x 60% = $3,648

Total deduction = $9,828 + $3,648 = $13,476

You do not need to consider GST, and as these rates include vehicle depreciation, you cannot claim a separate depreciation deduction for the vehicle.

The actual costs method

The actual costs method requires you to keep track of the total costs of running your vehicle, so you can claim the work-related percentage of those costs.

This means keeping accurate records and proof of all vehicle-related expenses throughout the year, not just during the 90-day logbook period. This includes fuel (including EV charging), repairs, maintenance, insurance, registration, tolls, and parking.

You have two options to determine the work-related portion:

  1. Use a logbook: This is the most accurate way to calculate the exact percentage of business travel.
  2. The 25% method: You can claim up to 25% of all vehicle expenses without a logbook, though the IRD may still ask you to justify how you reached this figure.

Once you have chosen your option, apply the following calculation:

Actual costs x (Work-related portion OR 25%) = Claimable cost

Calculating depreciation and GST

When using this method, you can also claim:

  • Depreciation: This accounts for the vehicle’s loss in value over time. For new assets purchased before 31 March 2026, you may be able to claim a larger portion upfront via the 20% Investment Boost.
  • GST on purchase: If you are GST-registered, you can claim the work-related proportion of the GST on the vehicle’s purchase price.

Example:

If over the course of the financial year you have spent $25,000 in actual costs on a vehicle, and your logbook shows that 70% of the vehicle’s use is work-related, then you can calculate your claimable cost as:

$25,000 x 70% = $17,500

If you also bought the vehicle in the same financial year and paid GST on the purchase price, you could also claim a GST deduction using the following formula:

GST amount x Work-related portion = GST deduction

If the GST paid was $5,000 and the work-related portion was 70%, the deduction would be calculated as: $5,000 x 70% = $3,500.

If you are unsure about any calculations or would like more information on business-related vehicle expenses, contact your professional tax adviser to discuss your unique business situation.

Ready for tax time?

Making calculations for work-related car expenses requires diligence and clear records – but with those in place, tax time becomes much simpler.

This article was originally published in February 2020 and has been updated in February 2026 to provide further insight to small business owners in light of upcoming tax time.