Commissioner has dropped the mileage rate

Tax Alert - September 2015

The Commissioner has completed her annual review of the mileage rate for expenditure incurred for the business use of a motor vehicle.  The rate has reduced to 74 cents (from 77 cents for 2014) per kilometre for both petrol and diesel fuel vehicles for the 2015 income year (1 April 2014 to 31 March 2015).  The reduction is largely due to lower average fuel costs during the 2015 income year compared to the 2014 income year and to some extent more efficient motor vehicles.

Self-employed people can use this rate to calculate the cost of using a vehicle for work purposes, but only up to a maximum of 5,000 km of work-related travel per year. For distances greater than 5,000 km actual vehicle expenses must be kept. The mileage rate is set retrospectively because if reflects the average motor vehicle operating costs for an income year. The Commissioner does not propose to amend the returns for taxpayers who have already filed their 2015 returns using the 2014 mileage rate.

The mileage rate is commonly used as a basis on which to reimburse employees for work-related travel. Inland Revenue will accept the standard mileage rate as being a reasonable estimate of the costs likely to be incurred by an employee.  The reimbursement is exempt from income tax "to the extent to which it reimburses the employee for expenditure for which the employee would be allowed a deduction if the employment limitation did not exist". Employers who reimburse employees for business travel in excess of 5,000 km will need to consider whether the mileage rate is still a reasonable estimate of the employee's costs. The rate applies irrespective of engine size or whether a vehicle is powered by a petrol or diesel engine. The mileage rate does not apply to motor cycles.

Employers may use an alternative estimate other than the Commissioner’s vehicle mileage rate when reimbursing employees for use of their private vehicle for employment related use. For example, rates published by a reputable independent New Zealand source representing a reasonable estimate (for example New Zealand Automobile Association mileage rates).  The other alternative is to use actual costs.

If you have any questions in relation to this, please don’t hesitate in contacting your usual Deloitte advisor.

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