In Operational Statement OS 19/04 Kilometre rates for the business use of vehicles for the 2020 income year (OS 19/04) the Commissioner set interim rates for the 2019/2020 income year. At the time that OS 19/04 was published it was only possible to set interim rates because the Commissioner relies on third-party information to set the kilometre rates and that information was not then available due to COVID-19. OS 19/04 advised that the 2019 kilometre rates would continue to apply until the required third-party information was available and a full review could be undertaken.
That review has now been completed. The rates set out apply for the 2019/2020 income year for business motor vehicle expenditure claims. The tier one rates reflect a slight increase in vehicle ownership costs (such as insurance and registration charges). However, the tier two rates reflect a decrease in overall vehicle operating costs largely a reduction in the cost of fuel. Taxpayers that have filed their 2020 income tax returns using the interim rates that were released in OS 19/04, are able to request their return be reassessed to take into account these finalised kilometre rates, in terms of s 113 of the Tax Administration Act 1994.
The table of rates for the 2020 income year:
Using the Tier One and Tier Two rates
The Tier One rate is a combination of your vehicle's fixed and running costs. Use the Tier One rate for the business portion of the first 14,000 kilometres travelled by the vehicle in a year. This includes private use travel.
The Tier Two rate is for running costs only. Use the Tier Two rate for the business portion of any travel over 14,000 kilometres in a year.
Using Tier One and Two rates for employee reimbursement
If you're an employer, you can use Tier One and Tier Two kilometre rates to get a reasonable estimate of costs. These will help when reimbursing an employee who has business-related use of the vehicle.
Your employee will need a record showing their business-related use of the vehicle over the income year, such as a logbook. You then use it to calculate the exempt portion of reimbursement using the kilometre rates we've set. For example, use the Tier One rate for the business portion of the first 14,000 kilometres (total) travelled by the vehicle in the income year, and then the Tier Two rates after that.
Source: IRD
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