Can I claim car expenses?

Yes if you use your vehicle for business purposes, you can claim the business portion of your vehicle costs as a tax deduction. There are two methods: the kilometre rate method or the actual costs method (using a logbook).

Method 1: The IRD kilometre rate

This is the simplest method. You multiply the number of business kilometres you drove by IRD's published rate for your vehicle type. No need to track individual fuel receipts or servicing costs — the rate covers everything including depreciation.

How it works:

• Keep a record of business trips (date, destination, purpose, kilometres driven)
• At tax time, multiply your total business kilometres by the applicable IRD rate
• This amount is your deduction

Tier 1 and Tier 2 rates:

From the 2024–25 income year, IRD publishes separate rates by vehicle type (petrol, diesel, petrol hybrid, electric), split into two tiers:

• Tier 1 — covers fixed and running costs, applies to the first 14,000 km of business travel per year
• Tier 2 — covers running costs only, applies to business travel beyond 14,000 km per year

The exact rates change each year. Always check the current rates at ird.govt.nz — Kilometre rates before filing.

For most sole traders doing under 14,000 km of business travel per year, the Tier 1 rate applies to all your business kilometres.

Method 2: Actual costs (logbook method)

If you want to claim the actual costs of running your vehicle, you need to establish the business-use percentage using a logbook.

How it works:

1. Keep a logbook for at least 90 consecutive days, recording every trip (date, distance, purpose — business or private)
2. Calculate the percentage of total kilometres that were for business
3. Apply that percentage to all your actual vehicle costs for the year (fuel, insurance, WoF, servicing, registration, loan interest, and depreciation)

Example:

Your logbook shows 40% of driving was for business. Your total vehicle costs for the year were $8,000. Deductible amount: $8,000 × 40% = $3,200

Your logbook percentage is valid for up to 3 years, as long as your business use doesn't change by more than 20%. After 3 years, you'll need to complete another 90-day logbook.

Which method is better?

The kilometre rate method is simpler and good for most sole traders. The logbook/actual costs method may be better if you have high vehicle costs and a high proportion of business use.

Important: You can only choose one method per vehicle per year. You can't switch mid-year.

What about a car used only for work?

If a vehicle is used exclusively for business (never for personal use), you can claim 100% of all vehicle costs. However, IRD may scrutinise this — be sure you can demonstrate the vehicle is genuinely not used for private purposes.

Travel that is not deductible

Driving from your home to a regular place of work is considered private travel and cannot be claimed. Only travel directly related to earning your income is deductible.

💡 Lodg guides you through the simplest method for your situation to make sure you claim the maximum you're entitled to.

Source: ird.govt.nz — Vehicle expenses | ird.govt.nz — Kilometre rates 2024–2025 | ird.govt.nz — Use a logbook