Vehicle Expenses and Tax Deductions for NZ Companies in 2026

Vehicle Expenses for NZ Companies: The 2026 Rules

For many NZ company directors, a vehicle is one of their largest business expenses. The tax rules around vehicle deductions depend on who owns the vehicle (the company or you personally), how it is used, and whether employees or shareholder-employees drive it.

Getting this wrong leads to IRD adjustments, interest, and penalties. Getting it right puts thousands of dollars back in the business each year.

Option 1: Personally-Owned Vehicle (Most Common for New Companies)

If you own the vehicle personally and use it for business, your company can reimburse you. There are two approaches:

Logbook Method

Keep a logbook for 90 consecutive days, recording every trip, its purpose, and the kilometres driven. The proportion of business kilometres to total kilometres becomes your deductible percentage. Once established, you use that percentage for three years before re-testing. A logbook consistently showing 70% business use means 70% of all vehicle costs (fuel, insurance, registration, WOF, servicing, and depreciation) are deductible.

IRD Kilometre Rate (Simpler)

For 2025-2026, IRD sets kilometre rates by vehicle type. The rates reimburse a flat amount per kilometre of business travel. No logbook needed, but you must record each business trip (date, destination, km, purpose). This method suits directors who do occasional business travel rather than primarily business driving.

Rates for 2025-2026: petrol/diesel up to 14,000km: $1.04/km; electric: $0.37/km; hybrid: $0.26/km (check ird.govt.nz for current rates as they update annually).

Option 2: Company-Owned Vehicle

If the company owns the vehicle, all operating costs are deductible as a business expense. However, if you or any employee uses the vehicle privately, Fringe Benefit Tax (FBT) applies.

FBT on Company Vehicles

FBT is calculated at 20% of the vehicle's cost price (or tax value) per quarter. For a $40,000 vehicle, that's $8,000/year in FBT liability, which the company pays, not the employee. FBT is deductible to the company but adds complexity.

Exceptions: a ute or van used primarily for business (not private use) may be FBT-exempt. Specific rules apply; get advice from your accountant.

Electric Vehicle Exemption

From 1 April 2023, electric vehicles (EVs) with a cost of up to $80,000 (including GST) are exempt from FBT when provided to employees. This is significant for company directors looking to electrify their fleet while reducing FBT compliance costs.

GST on Vehicle Expenses

GST-registered companies can claim input tax credits on vehicle expenses proportional to business use. If your company is GST-registered and a vehicle is 70% business use, you can claim 70% of the GST on fuel, repairs, and the vehicle purchase (for company-owned vehicles).

Depreciation

Company-owned vehicles depreciate at 30% diminishing value (or 21% straight-line) for most passenger vehicles. The depreciation deduction reduces taxable income each year. Keep the vehicle on the asset register from day one.

Common Mistakes Made by New Company Directors

• No logbook: IRD can disallow 100% of personal vehicle claims without adequate records.
• Claiming 100% on a mixed-use vehicle: Unless the vehicle is exclusively for business (a dedicated work ute or van with clear restrictions on private use), 100% deductions are a red flag.
• FBT on personal-use company vehicle: Many new directors buy a vehicle through the company without understanding FBT. The tax bill surprises them at year end.
• GST on private portion: You cannot claim GST on the private-use portion of any vehicle expense.
• Lease vs buy: Leasing often simplifies GST and FBT; owning builds an asset but adds depreciation complexity. Get advice before signing.

Provisional Tax Interaction

Vehicle depreciation and deductible expenses reduce your company's taxable income, which in turn reduces provisional tax. Many new directors underestimate this in their year-one provisional tax calculation and overpay. Your accountant should factor in all vehicle deductions when estimating your first provisional tax payment.

Action Steps for New NZ Company Directors

1. Decide: personal vehicle reimbursed by company, or company-owned vehicle.
2. If personal: start your logbook immediately or use the kilometre rate and record every business trip from day one.
3. If company-owned: discuss FBT obligations with your accountant; consider an EV for the exemption.
4. Add the vehicle to your asset register with purchase date and price.
5. Claim GST on business-use portion at your next GST return.
6. Factor depreciation into your provisional tax estimate.

An accountant who specialises in working with new NZ companies can structure your vehicle arrangement correctly from the start and ensure you're not paying tax you don't owe. FreshFirms connects newly-incorporated NZ companies with local accountants - if you're looking for advice, submit your details here.