“It’s tax time, baby!” … said no one. Ever.
For many of us, the end of the financial year can be a bit of an… adventure, let’s say. But not necessarily the kind we’re used to here at MyAutoShop!
After a few questions here and there from your accountant or tax agent, and perhaps a few doubtful stares, you’ll no doubt be living with your fingers crossed, until you find out how much tax there is to pay.
Don’t worry, everyone else is going through the exact same thing!
Whether or not your encounters with tax agents are similar to those described above, or a veritable walk in the park, the process of accounting for your income over the year is a duty that cannot be avoided, so knowing what costs you can claim is super important.
What can I claim tax deductions for?
Business travel and, more especially, car-related expenses, are an area where many of us can file claims.
In New Zealand, if you have a car that is solely used for business, you can deduct the entire cost of ownership as a business expense.
If you use your car for both business and personal reasons, you’ll need to figure out how to properly apportion spending. The journey from home to work is a private one.
You can accomplish this in one of three ways: keep a logbook, claim 25% of the vehicle’s operating costs, or add up the real expenditures. After each tax year closes on March 31st, we announce the kilometre rates.
Examples of approved motor vehicle tax deductions
- Fuel. The petrol and oil that you use to power your vehicle for business.
- Registration & WOF. Fees for registering a vehicle or obtaining a warrant of fitness.
- Maintenance and tyres. The expense of maintaining or repairing your car using commercial labour or materials. You can’t claim for your labour if you handle the maintenance yourself. Commercial cleaning and cleaning products are examples of this.
- Parking & tolls. Tolls or parking related to a business travel. Fines and tickets, however, are not eligible for reimbursement.
- Car insurance is coverage for a vehicle used for work.
- On road costs. You will be charged for using your work car on the road.
How to calculate what motor vehicle expenses you can claim
There are two ways you can make a claim on your car-related expenses:
- The log book for a full year (12 months)
- Actual costs over three-month test period
Option 1: Logbook
The first method we’ll cover is to keep a log of all business trips made in the vehicle during the income year as one way for determining the business use proportion of a vehicle.
You must keep a complete and accurate record of the reasons for and distances travelled on all business trips, as well as any additional information requested by the IRD.
The total distance of all business trips during the year divided by the total distance travelled by the vehicle during the year is the business use proportion for the income year.
Option 2: Actual costs
The other option is to keep track of your vehicle’s actual operational costs and deduct them as a business expense.
You’ll need to keep meticulous records, including details of both personal and professional spending.
Purchasing gasoline, obtaining a Warrant of Fitness, paying for maintenance, insurance, and parking are some of these costs.
All business travel must be documented, including the reasons for the trip and the distance travelled. You can also claim a discount for any depreciation loss on your vehicle used for commercial purposes. So you can see, keeping track of and making those tax deductions is clearly a worthwhile exercise.
Conclusion
When it comes to claiming car deductions, those are the fundamentals. If you want to learn more and get down to the nitty-gritty, your best bet is to get the information straight from the source: The Inland Revenue Department.
Tax season can be stressful, and you may just want to get it over with so you can get on with your life (!) but knowing about what expenses you can claim not only makes things easier, but it also means you could wind up with more money in your pocket.
We totally get it! It may seem boring to keep a logbook and keep receipts, but devoting a little time to getting the information straight can pay off. And it’s not like that’s a difficult task.