How do I claim vehicle expenses when I have a company?
Claiming vehicle expenses in companies is increasingly becoming an area of interest for Inland Revenue and businesses are often exposing themselves inadvertently to investigation and penalties through simply not being aware of the issues. So, below is some basic explanation and help.
Currently companies can claim expenses in two ways depending on the ownership of the vehicle.
• Privately owned vehicle – mileage rate, currently the Inland Revenue rate of 72 cents/km applies
• Company owned vehicle – full claim for expenses for both income tax and GST. Beware, Fringe Benefit Tax (FBT) may apply.
This post will focus on company ownership and some issues with FBT.
FBT will apply where a vehicle is available for private use. Please note that travel between home and work will generally be considered private travel and so many company vehicles will be caught within the FBT net.
An exception to this is where the vehicle is not principally designed for carrying passengers and meets the definition of a “work-related vehicle”. These work-related vehicles will include vans and utes meeting certain criteria and such vehicles may be able to be taken home by employees without triggering FBT consequences. Note, however, that should these work-related vehicles be available for private use, such as towing a boat or driving down the coast for a surf, then FBT will apply.
Criteria for work-related vehicle exemption
• Must not be a car, ie not principally designed for carrying passengers
• Must have the employer’s name prominently and permanently displayed
• Records retained to support the exemption, such as:-
– Letters restricting private use
– Periodic checks
– Logbook for shareholder-employees
Partial exemptions are also available where work-related vehicles are allowed to be used privately on certain days. Similar criteria apply but the restricted period is identified within the records. The unrestricted private may only be on certain days, such as weekends, in which case the fringe benefit will be proportionately reduced.
For cars that don’t meet the “work-related vehicle” criteria there are ways to reduce the number of days subject to FBT. These include keeping records of emergency calls, out-of-town travel and other times when the vehicle is not available, such as break downs.
Please note that some companies may be able to avoid FBT on shareholder-employee vehicles from 1 April 2017 should a recent Tax Bill become law. Where the new criteria are met they will be able to elect into using a logbook method, similar to self-employed options and apportion the costs that way.
Need help with an upcoming vehicle purchase? Or do you have questions about your current vehicle situation? We offer solutions and advice to help businesses review exposures to FBT for motor vehicles in more detail. We can offer solutions to mitigate adverse outcomes by identifying issues and documenting restrictions. If you are interested in these please contact us.