Vehicle expenses: kilometre rates or logbook?

If you drive for work, some of your vehicle's cost is deductible, and the question is how to count it. Inland Revenue offers a per-kilometre shortcut and an actual-costs method built on a logbook. The right choice depends on how much you drive and what the vehicle costs to run. This guide covers both, plus the line that decides whether a trip is business at all.

What counts as business travel

Travel between work sites, to clients, to suppliers, and between your home office and other work locations can be business travel. The line that matters is this: commuting from home to a regular workplace is private, and no method turns it into a claim. A contractor whose base is genuinely their home office is in the strongest position, since trips from that base to clients are business by nature. A contractor who drives daily to the same client site for a year looks like a commuter on that route, and should treat it accordingly.

Method one: the kilometre rates

Track your business kilometres and multiply by the published rates. Two tiers apply, and the boundary between them is the vehicle's total travel for the year, business plus private, not just the business share:

The Tier 1 rate covers the vehicle's fixed costs, such as depreciation, insurance, and registration, as well as running costs, which is why it is several times the Tier 2 rate. Once total travel passes 14,000 km, the fixed costs are treated as recovered and only running costs remain. A contractor who drove 5,000 business km in a 12,000 km year claims 5,000 x $1.20 = $6,000 at the petrol rates. Rates are re-published each year, so check the current table before filing.

Method two: actual costs with a logbook

Claim the business share of everything the vehicle really costs, including fuel, insurance, registration, servicing, repairs, and depreciation. The business share comes from a logbook kept for at least 90 consecutive days, recording every trip's purpose and distance. That test period sets your business-use percentage for up to three years, provided your pattern doesn't change materially. Keep the receipts behind every cost, for seven years.

Choosing between them

• Low kilometres, ordinary car: the kilometre rates are simpler and often give you more, because the Tier 1 rate is generous for cheap-to-run vehicles.
• Expensive vehicle or heavy business use: actual costs usually claim more, because real depreciation and running costs on an expensive vehicle add up to more than the flat rates. The 90-day logbook is what it takes to use this method.
• Consistency matters: the method you pick for a vehicle is the method you stay with while you own it, so it is worth running the comparison once, properly, when the vehicle enters business use.

How Coffer helps

Record the year's vehicle claim in Coffer as an expense and it feeds your projected taxable profit, adjusting what gets ringfenced from each payment. The general rules for what makes any expense claimable, and the records behind them, are in the business expenses guide.