The Inland Revenue Department reviews its published mileage rate annually.
In May, the IRD announced an increased rate of 73c a kilometre for both petrol and diesel vehicles for the 2017 income year, as compared with 72c for the 2016 income year. The increase is primarily due to a slight increase in fixed vehicle costs and higher average fuel costs during the 2017 income year.
For the first time, the IRD also set mileage rates for hybrid (73c) and electric cars (81c). Notably, while these types of vehicle tend to have lower running costs than petrol/diesel cars, this was considered to be offset by higher purchase/fixed costs. It is perhaps possible to suggest there is a systemic bias built in to support those who go ''green''.
These published mileage rates are primarily (and retrospectively) set for self-employed people whose business travel is 5000km or less in an income year, and thus relate to the tax year ended March 31, 2017.
Those taxpayers who meet these two criteria have the choice of using the mileage-rate method, or they may use actual costs if they consider that the IRD's mileage rate does not reflect their true costs. Taxpayers who choose to use actual costs are required to keep significant records to support any expenditure claimed.
In essence, the provision of mileage rates in this form by the IRD is a compliance-saving mechanism, as otherwise every taxpayer would have to maintain detailed records of actual cost, plus calculate holding ''costs'', to work out an ''actual'' reimbursing rate.
For most, the simple application of the IRD rates is the path of least effort, and given that the receipt of such (even as a book entry) is not taxable income, this ensures that the right net tax outcome (deductible/not assessable) occurs.
Given the timing of this announcement, the IRD does not propose to amend the returns for taxpayers who have already filed their 2017 returns using the 2016 mileage rate of 72c. Although practical, it is also to the Government's favour and likely to be immaterial.
Employers may also use the 2017 vehicle mileage rate as a reasonable estimate of costs when they reimburse employees for the use of their private vehicle for business-related travel for the current income year (i.e. post April 1, 2017). Again, such will be deductible to the employer but not assessable income to the recipient employee.
For the same reasons outlined above, this is a practical way to manage this type of widely applicable reimbursement. In reality, some employers choose/negotiate to apply lower rates when reimbursing employees for the use of their private car for business purposes, and it is likely that these will just be accepted by the IRD, as the net effect is a lower level of tax leakage. Higher rates will need more justification, though.
Obviously, if a business provides the usage of a motor vehicle to its employees, it would need to consider the fringe benefit tax consequences. These can vary depending on the nature of the vehicle (e.g. a sign-written van/ute versus other vehicles), and the business ''rules'' around private usage.
Just remember that, ordinarily, whether FBT applies is determined by ''availability'' for private use, not necessarily actual usage for private purposes. However, active management can often significantly reduce exposure to FBT on business vehicles.
-Scott Mason is managing partner of tax advisory for Crowe Horwath Australasia.
