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Mileage rate released by Commissioner of Inland Revenue

Tax Alert - June 2017

By Veronica Harley and April Wong

On 15 May 2017, the Commissioner of Inland Revenue released the results of her review of the mileage rates for expenditure incurred for the business use of a motor vehicle. The review resulted in an upward adjustment of the mileage rate from 72 cents in 2016 to 73 cents for the year ended 31 March 2017 for petrol and diesel vehicles. The new rate applies for persons whose business travel is 5,000 km or less in an income year.

This year, separate rates have been introduced for hybrid and electric vehicles of 73 cents per km and 81 cents per km respectively. However, the mileage rate still does not apply in respect of motorcycles.

The Commissioner is required to set a mileage rate for persons whose business travel is 5,000 km or less in an income year. The mileage rate is set retrospectively for persons required to file a return for business income, so that the rate reflects the average motor vehicle operating costs for an income year. Those persons who meet the criteria have a choice of using the mileage rate method or they may use actual costs if they consider that the Commissioner’s mileage rate does not reflect their true costs. Taxpayers that choose to use actual costs are required to keep records to support any expenditure claimed.

Employers may also use the new mileage rate as a reasonable estimate of costs when they reimburse employees for the use of their private vehicle for business related travel for the 2018 year, i.e., post 1 April 2017. Employers are still permitted to use an alternative estimate to reimburse their employees if they so wish, so long as the estimate is based off reputable sources, such as the New Zealand Automobile Association Incorporated. The Commissioner advises that she does not propose to amend the returns for taxpayers who have already filed their 2017 returns using the previous mileage rate of 72 cents.  

Effective from the 2018 income year, a draft replacement Operational Statement will be released for consultation at some future stage due to recent changes to the legislation made by the recently enacted Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017.  With effect from the 2018 income year, the 5,000 kilometre limit is removed and replaced with the “kilometre rate method”, which will allow a taxpayer to deduct a fixed amount per kilometre travelled for business purposes based on a set of tiered rates published by the Commissioner.

 

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