Reimbursement for the use of a private motor vehicle

Section CW 13 of the Income Tax Act 2004

Employers may use published mileage rates to reimburse employees who use their own vehicles for work purposes.

In accordance with section CW 13 of the Income Tax Act 2004, employers may determine the amount of employee reimbursement exempt for tax purposes when employees use their own vehicles for work purposes.

Employers can reimburse an employee based on actual expenditure incurred by the employee - or by making a reasonable estimate of the expenditure incurred. A "reasonable estimate" recognises that employers have differing business needs and that a "one size fits all" rate may not necessarily be accurate.

Employers may use rates published by a reputable independent New Zealand source, representing a reasonable estimate (for example, New Zealand Automobile Association Inc mileage rates) to reimburse staff using their private motor vehicle for work purposes.

The mileage rate used must be a reasonable estimate. In establishing a reasonable estimate regard should be given to the nature of the business and the type of employee vehicles.

Employers may also continue to use the rates published by Inland Revenue in the Tax Information Bulletin Vol. 7, No. 8 (February 1996).

This gives employers four options when reimbursing staff for the business use of a private vehicle:

• actual expenditure incurred by the employee;
• an employer's own reasonable estimate of expenditure incurred by an employee;
• published mileage rates, as long as they represent a reasonable estimate; and
• the rates published by Inland Revenue in the February 1996 Tax Information Bulletin.

Employers may apply published mileage or other rates effective immediately. The other options have been available to employers for a number of years.

Reimbursement of shareholder-employees

The above conditions apply to shareholder-employees of a close company as for ordinary employees for reimbursement of motor vehicle expenditure if either of these conditions is met:

• the shareholder-employee receives regular amounts of salary or wages at least monthly throughout the year; or
• the shareholder-employee receives regular salary or wages that are at least 2/3 of their annual gross income as an employee of the company.

For example, a shareholder-employee who meets either of these two conditions can use the rates published by Inland Revenue in the February 1996 Tax Information Bulletin for work-related travel in excess of 5,000 km a year as well as for work-related travel up to 5,000 km a year.