Alright, let’s talk about the often-overlooked kilometre charge out rate. You’re probably wondering, how much should I actually charge for using my vehicle for work in New Zealand? You’re not alone. Whether you’re self-employed, an employer, or just figuring out how to keep your expenses in check, understanding how to calculate your mileage expenses can be a real game-changer for your business or personal finances.
In this article, we’ll dive into everything you need to know about km charge out rates. From calculating your travel fees to understanding the IRD’s mileage reimbursement rules, we’ve got you covered. Ready to track those kms and keep your accounts looking sharp? Let’s get started.
Understanding the Kilometre Charge Out Rate in New Zealand
Now that we’ve got your attention, let’s get into the nitty-gritty of the kilometre charge out rate in NZ. If you’ve ever used your car for work, you’ve probably wondered how much you can charge for those kilometres. Spoiler alert: it’s not as simple as just picking a random number! There are guidelines in place, and understanding them can help you maximize your travel reimbursements while staying compliant with the IRD.
In New Zealand, the kilometre charge out rate is determined by the IRD, and it varies depending on how you’re using your vehicle. Whether you’re an employee, self-employed, or running a business, knowing the right rates and claiming the right amount can save you money or even help you avoid penalties.
Let’s break it down:
- For Self-employed: You’ll need to keep track of your vehicle’s mileage and expenses, then apply the right rate.
- For Employers: Your business may reimburse employees for work-related travel – but are you using the correct rate?
- For Employees: Find out what you can claim back from your employer.
Keep reading to make sure you’re charging the right amount and not leaving money on the table!
How Much Can You Charge per Kilometre in New Zealand?
You might be thinking, “How much can I actually charge for my travel?” and you’re not alone in asking that! The kilometre charge out rate is crucial for covering all the expenses tied to using a vehicle for business purposes. Fortunately, the IRD provides a set of rates that tell you exactly how much you can charge based on the distance driven.
Now, the rates are divided into Tier 1 and Tier 2, depending on how far you’re driving each year. The key difference? Tier 1 covers your fixed and running costs, while Tier 2 only applies to the running costs of your vehicle once you’ve exceeded the 14,000-kilometre mark.
Here’s the breakdown for the 2025-2026 income year:
| Vehicle Type | Tier 1 Rate per km | Tier 2 Rate per km |
|---|---|---|
| Petrol or Diesel | $1.04 | $0.35 |
| Petrol Hybrid | $1.04 | $0.21 |
| Electric | $1.04 | $0.12 |
What’s the Difference Between Tier 1 and Tier 2?
So here’s the deal:
- Tier 1: This rate applies to the first 14,000 km you drive in a year. It covers both fixed costs (like depreciation, insurance, registration) and running costs (fuel, maintenance, repairs). You can use this rate for both business and private use travel.
- Tier 2: Once you hit the 14,000-kilometre mark, the Tier 2 rate kicks in. This rate applies only to running costs of the vehicle and is lower because it doesn’t account for the fixed costs anymore. It’s for business use over the 14,000 km threshold.
Example
Let’s say you drive a petrol car for a total of 20,000 km in a year for work. Here’s how the calculations would break down:
- For the first 14,000 km, you use Tier 1 at $1.04 per kilometre, so that comes to $14,560.
- For the remaining 6,000 km, you use Tier 2 at $0.35 per kilometre, which gives you $2,100.
In total, that’s $16,660 you could claim for your business-related travel. Not bad, right?
Knowing when to apply each rate can make a huge difference in how much you’re able to claim. And remember, this isn’t just useful for self-employed folks or businesses—it’s relevant if you’re an employer reimbursing employees for work-related travel too.
How to Charge for Business Travel and Reimbursement
Alright, so now that we know the rates, let’s dive into how you can charge for business travel and set up a system that works.
Practical Tips for Self-Employed Individuals, Business Owners, and Employees
When you’re using your vehicle for business purposes, you need to set up an effective system to track both your kilometres travelled and related expenses. This makes it easier for you (or your employees) to bill clients or request reimbursement, and ensures you’re claiming the right amount for tax purposes.
Here’s how you can set it up:
- Track your business trips: Keep a logbook or use a mileage tracking app to track your business kilometres separately from your personal travel. Apps like TripLog or Stride can make it easy to record the distance and purpose of each trip.
- Calculate your reimbursement rate: Based on your kilometre charge out rate, calculate how much you can charge for each trip. If you’re a business owner or self-employed, charge clients or your company accordingly. If you’re an employee, make sure your employer reimburses you at the right rate.
- Set up a system for billing: Ensure you have clear records for every trip, and present the mileage and expenses in an itemized format. This helps avoid confusion and ensures your reimbursement is accurate.
- Reimbursement methods: If you’re reimbursing employees, consider paying them monthly or quarterly for business travel. Set up a reimbursement policy that includes:
- The kilometre rate used for calculations (based on the IRD rates or whatever rates you choose).
- The type of vehicle being used (is it a petrol, hybrid, or electric car?).
- A clear expense report system for any additional costs like tolls or parking fees.
Example: Setting up a Per-Km Rate for Business Trips
Let’s say you’re a self-employed consultant who drives 12,000 km a year for client meetings, workshops, and site visits. Here’s how to structure it:
- Set a per-km rate: You use the Tier 1 rate from the IRD for the first 14,000 km, so for every business trip, you charge $1.04 per km.
- At the end of the month, total the distance driven and apply the charge out rate for reimbursement.
For instance, if you drive 500 km for business in a month, you would charge your business or clients:
500 km x $1.04 = $520 in reimbursements.
Make sure you keep detailed records for tax deductions and business expenses, especially when working with clients or employees. This will ensure you stay on top of your mileage reimbursements and get the full benefit of the km charge-out rate. For more tips on business tax deductions, check out our article about rental properties : what can you claim ?
Setting up an organized system isn’t just about following the numbers—it’s about making sure everything is simple, transparent, and efficient for everyone involved.
Final Thoughts
Alright, here we are! Charging for business travel might sound a bit boring, but it’s one of those things that can save you time, money, and a whole lot of stress if you get it right. By using the IRD’s kilometre rates and setting up a solid system for tracking your mileage and expenses, you’ll ensure your travel reimbursements are on point and compliant.
It’s all about making the process as smooth and hassle-free as possible.
Got questions or need help setting it up? Don’t sweat it, just give me a shout! Let’s get that mileage game sorted so you can focus on what matters.