2017 review of the Commissioner’s mileage rate for expenditure incurred for the business use of a motor vehicle

Operational Statement 09/01 ("OS") published in the Tax Information Bulletin Volume 21, Number 3 (May 2009) provides the Commissioner's statement of a mileage rate for expenditure incurred for the business use of a motor vehicle. This OS provides that the Commissioner will review mileage rate on a yearly basis.

A review of the Commissioner’s mileage rate results in an increased rate of 73 cents per kilometre for both petrol and diesel fuel vehicles for the 2017 income year compared to 72 cents for the 2016 income year. The increase is primarily due to a slight increase in fixed vehicle costs and higher average fuel costs during the 2017 income year. The 2017 income year for business taxpayers with a standard 31 March balance date, runs from 1 April 2016 to 31 March 2017.

This year we are also able to set mileage rates for hybrid and electric cars. For the first time we have been able to obtain reliable data in respect of the fixed and running cost for these types of vehicles. These mileage rates are:

• Hybrid - 73 cents per km
• Electric - 81 cents per km

For both Hybrid and Electric vehicles, our data shows that although these types of vehicle have lower running costs, these are offset by higher fixed costs.

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.

The Commissioner does not propose to amend the returns for taxpayers who have already filed their 2017 returns using the 2016 mileage rate.

The Commissioner accepts that employers may use the 2017 vehicle mileage rate as a reasonable estimate of costs when they reimburse employees for the use of their private vehicle for business related travel for a current income year (post 1 April 2017).

Also, 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. It is accepted that employers may use the motor vehicle running cost data published by other reputable sources, for example the New Zealand Automobile Association Incorporated, as an alternative reasonable estimate for reimbursement of employees.

The mileage rate does not apply in respect of motor cycles as this mode of transport is not commonly used for business purposes. Any self-employed persons who use this form of transport for business purposes will need to calculate their actual expenditure or in the situation of an employer reimbursement, they may make a reasonable estimate of the employee’s costs.

As a consequence of changes to the legislation, effective from the 2018 income year, a draft replacement OS will be released for consultation at some future stage.