Motor vehicle is an integral part of any business, and the motor vehicle expense for a small business can be between $5000 to $8,000 per annum thus record keeping and tax rules adherence becomes important.

Things to know about your motor vehicle-

1. The ownership- do you own the vehicle, this is not the ownership shown in land transport records, the ownership is determined by sale and purchase agreement of your motor vehicle. Instead of owning the vehicle many business lease the motor vehicle, generally there are two types of lease – Finance Lease and Operating lease
a. Finance lease is like your home loan, you pay regular payments for certain period of time and then the ownership is transferred to you.
b. Operating lease is like renting a car, you would use it for certain time and when the lease expires the vehicle is returned back to the owner.

2. Expense deduction- general assumption is if this is companies vehicle all expenses related to the vehicle are deductible expenses, which is correct but you also need to ensure there is no private usage attached to your vehicle otherwise Fringe Benefit rules will kicks off

3. Business usage- IRD has stipulated four points to ensure the vehicle is business related vehicle:
a. The principle design of the vehicle is not for carrying passenger, which means vehicles rear seats are welded down or not in usable condition to carry passengers
b. The exterior of the vehicle permanently or prominently display the business name
c. If you have given this vehicle to your employee or if you are an employee of the company, instructions must have been issued to the employee mentioning the vehicle is not available for private use. Which means if you a sole director and shareholder of the company you would write a letter to yourself
d. As an employer you also need to make some checks to ensure your employees are following the instructions and not using your vehicle for private usage.

4. Fringe Benefit Tax- is vehicle is available for private use, regardless of you use it or not Fringe Benefit rules kicks off, however there is an exemption of $1200 per year for you but this exemption is not available to save FBT on motor vehicle usage. However, if you pay the taxable benefit back to the company then no Fringe Benefit Tax will apply.

5. Log Book- many business also follow this approach, which is based on record keeping of your usage. This approach can be time consuming but it’s worth it. How it works every time you use your car just write in a note book date of travel, traveling to and from, reason of travel, odometer start, odometer end, and distance travelled. You can keep this log book and end of the year multiply kilometre by $0.77 cents(tax year 2013), and use this as your business expense

Any further query related to your motor vehicle expense please contact IBBZ Accounting