Depreciation on Business Vehicles
Purchasing a vehicle through your business can be a smart move — not just for operations, but also for tax planning. However, many business owners overlook a key benefit: GST recovery, along with depreciation.
Understanding both can significantly improve your cashflow and overall tax position.
What Is Depreciation?
Depreciation allows businesses to claim the cost of an asset over its useful life, rather than deducting the full purchase price in one year. Vehicles are depreciable assets, meaning their value is written off gradually.
In New Zealand, depreciation rates are set by Inland Revenue and depend on the type of vehicle and method used (straight-line or diminishing value).
GST on Vehicle Purchases
If your business is GST-registered, you may be able to claim back the GST portion of the vehicle purchase — provided the vehicle is used for taxable business activities.
For example:
Purchase price: $100,000 (including GST)
GST component: $13,043
👉 This means you can claim a GST refund of $13,043 in your GST return (subject to business use %).
This is an immediate cashflow benefit, unlike depreciation which is spread over time.
Example: How It Works in Practice
Let’s assume:
Business profit: $300,000
Vehicle purchase: $100,000 (incl. GST)
Step 1: GST Refund
You claim back $13,043 GST, reducing the effective cost of the vehicle to $86,957.
Step 2: Depreciation
Depreciation is calculated on the GST-exclusive value (i.e. $86,957).
If we assume a 20% depreciation rate, your first-year deduction would be approximately:
👉 $17,391
Tax impact:
Original profit: $300,000
Less depreciation: $17,391
New taxable income: $282,609
This results in a lower tax bill for the year.
What Can You Claim?
In addition to depreciation and GST, you may also claim:
✔ Fuel and servicing
✔ Insurance and registration
✔ Repairs and maintenance
✔ Interest on finance
(All subject to business use percentage)
Important Considerations
Before purchasing a vehicle through your business, keep in mind:
🔹 Private Use Adjustment
If the vehicle is partly used for personal purposes, both GST claims and expenses must be apportioned.
🔹 Fringe Benefit Tax (FBT)
If the vehicle is available for private use by employees or shareholders, FBT may apply.
🔹 Vehicle Type Matters
Different rules apply for cars vs utes/vans, especially for FBT and usage.
🔹 Cashflow vs Tax Savings
While you get a GST refund and depreciation benefits, you are still spending cash upfront — so planning is essential.
Final Thoughts
A business vehicle purchase can deliver two key tax benefits:
Immediate GST refund (improving cashflow)
Ongoing depreciation deductions (reducing taxable income)
When structured correctly, this can be a powerful strategy to optimise both tax and cashflow.
However, every situation is different. Getting advice before purchasing ensures you maximise benefits while staying compliant.