Since the start of the 2017/18 tax year (1 April 2017 for most) we have been waiting for the IRD to release new kilometre rates to be used for calculating Motor Vehicle reimbursements/deductions. On 5 July 2018, IRD released the new rates.

The new method for using the per kilometre rate now involves an irrevocable election for the vehicle and requires knowledge of the total kilometres travelled in that vehicle year, rather than just the business kilometres.

The rates are a fair bit simpler than was originally indicated by the IRD in March 2018, where it looked like up to 20 different rates would be issued, depending on the type of vehicle and engine size. The issue of only four rates will certainly be welcomed by taxpayers looking to use the kilometre rate to calculate their tax deduction or to reimburse employees.

The tier 1 rate which applies to the first 14,000 km is set at $0.76 per kilometre, while the tier 2 rate which applies where running exceeds 14,000 km is set at $0.26 for petrol or diesel vehicles, $0.18 for petrol hybrid vehicles and $0.09 for electric vehicles.

Often the reimbursement rate for employee's business use of their vehicle is set in their employment agreement. Historically this has aligned with IRD rates meaning the reimbursement was tax-free. Employers will need to revisit their policy on reimbursement given the new rates to ensure they can still correctly use a tax-free reimbursement. If not changes to the employment agreement may be required or PAYE deducted from the reimbursements.