The Income Tax (Kilometre Rates for the Business Use of Vehicles for the 2025-26 income year) Instrument 2026

The Income Tax (Kilometre Rates for the Business Use of Vehicles for the 2025-26 income year) Instrument 2026 

This instrument is made under section DE 12(4) of the Income Tax Act 2007 by the Commissioner of Inland Revenue.

1. Title

Income Tax (Kilometre Rates for the Business Use of Vehicles for the 2025-26 income year) Instrument 2026.

2. Commencement

This instrument comes into force on 4 June 2026.

3. Kilometre rates

For the purposes of section DE 12 of the Income Tax Act 2007 the kilometre rates for the 2025-26 income year are as set out in the Schedule.

The Tier 1 rate per kilometre in the Schedule applies for the first 14,000 kilometres travelled by a vehicle in the income year (including business and non-business use).

The Tier 2 rate per kilometre in the Schedule applies for any kilometres travelled by a vehicle over 14,000 kilometres in the income year (including business and non-business use).

Schedule

Kilometre rates for the 2025-26 income year

This instrument was made in Christchurch on 2 June 2026.

Stephen Donaldson

Technical Lead, Legal Services

Inland Revenue

Explanatory note

This note is not part of the instrument but is intended to indicate its general effect.

The Income Tax (Kilometre Rates for the Business Use of Vehicles for the 2025-26 income year) Instrument 2026 sets the kilometre rates for the 2025-26 income year for the purposes of deductions relating to business motor vehicle expenditure.

The purpose of the kilometre rates published by Inland Revenue is to provide a simple alternative method for business customers to establish the cost of using a vehicle and minimise compliance costs.  The kilometre rates are calculated as soon as possible, after the end of the 2025-26 income year, using third party data, so that they are available to business customers for their end-of-year return filing obligations.

The Tier 1 rate is a combination of a vehicle's fixed and running costs. Use it for the business portion of the first 14,000 kilometres travelled by the vehicle in an income year. This includes private use.

The Tier 2 rate is for running costs only.  Use it for the business portion of vehicle travel (both business and private use) that exceeds 14,000 kilometres in an income year.  

Further guidance on the purpose for, and use of, these rates is being published alongside these 2025-26 kilometre rates.

Guidance to the use of the kilometre rates

This note provides some clarification on the use of the Commissioner’s vehicle kilometre rates.  For more detailed information, please also read Operational Statement 19/04a, “Commissioner's statement on using a kilometre rate for business running of a motor vehicle – deductions” and 19/04b, “Commissioner's statement on using a kilometre rate for employee reimbursement of a motor vehicle”. 

Please be aware that the Commissioner is in the process of reviewing and updating these operational statements, and an updated statement will be published in due course. 

Use of the rates for business vehicles 

In situations where a business intends to claim expenses for a motor vehicle that is used for both business and other (private) purposes, they must calculate the proportion of business use.  They can do this by either deducting the business portion of their actual motor vehicle costs (the cost method) or by using the kilometre rates set annually by the Commissioner (the kilometre rate method). 

The above rates are applicable when using the kilometre rate method for calculating business use of a vehicle during the 2025-2026 income year and provide a reasonable estimate of the related expenditure for the use of a vehicle that can be claimed in that year.

Use of the rates for employee reimbursement for use of a vehicle 

The Commissioner’s motor vehicle kilometre rates are set primarily to provide an alternative method for calculation of claims for vehicle expenditure by business customers. They relate to the prior income year to assist with calculating deductible expenditure for return filing for that year.  However, the Commissioner understands that some employers may use the motor vehicle kilometre rates as a reasonable estimate of expenditure likely to be incurred by employees when providing reimbursements for the business use of private motor vehicles.

The kilometre rates are set each year based on information concerning vehicle expenditure in that period.  Reimbursement of employee expenditure is likely to occur in the current income year where these rates may no longer be a reasonable estimate of the expenditure incurred.   

To provide greater certainty to employers for determining reasonable expenditure to reimburse employees for the business use of their private vehicle, Inland Revenue is considering potential further guidance for reimbursement purposes in the 2027 income year due to the increase in fuel prices. In the interim, the 2025-2026 kilometre rates can still be used, or any other method that provides a reasonable estimate of the employee’s costs of using their private vehicle for business purposes, when considering reimbursement of an employee.