IRD Releases 2025–2026 Kilometre Rates

The Inland Revenue Department (IRD) has released the kilometre rates for the 2025–2026 income year for taxpayers claiming motor vehicle expenses under section DE 12 of the Income Tax Act 2007.

These rates provide a simplified method for calculating deductible vehicle expenses where a private vehicle is used for business purposes. Understanding which rate applies can help ensure your tax claims are accurate and compliant.

2025–2026 Kilometre Rates

The approved rates for the 2025–2026 income year are:

Vehicle Type Tier 1 Rate Tier 2 Rate
Petrol $1.20 per km $0.37 per km
Diesel $1.30 per km $0.38 per km
Petrol Hybrid $0.90 per km $0.24 per km
Electric $1.22 per km $0.23 per km

Understanding Tier 1 and Tier 2 Rates

The IRD uses a two-tier system to reflect the different costs of owning and operating a vehicle.

Tier 1

The Tier 1 rate applies to the first 14,000 kilometres travelled during the income year, including both:

• Business travel

• Private travel

Tier 1 includes both fixed and running costs such as:

• Depreciation

• Registration and licensing

• Insurance

• Warrant of Fitness

• Repairs and maintenance

• Tyres

• Fuel or electricity

Tier 2

Once the vehicle has travelled more than 14,000 kilometres during the income year, the Tier 2 rate applies to all additional kilometres.

Tier 2 reflects the ongoing operating costs of the vehicle, such as:

• Fuel

• Maintenance

• Tyres

• Electricity (for electric vehicles)

Because fixed ownership costs have already been recognised in Tier 1, the Tier 2 rate is considerably lower.

Example

Suppose you own a petrol vehicle and during the income year it travels:

• 18,000 kilometres in total

• 8,000 kilometres for business purposes

The first 14,000 kilometres are subject to the Tier 1 calculation, while the remaining 4,000 kilometres are subject to the Tier 2 rate.

Using the appropriate tiered calculation ensures your business mileage claim is consistent with IRD requirements.

Who Can Use the Kilometre Rates?

The kilometre rate method is commonly used by:

• Sole traders

• Self-employed contractors

• Small business owners

• Partnerships

• Individuals using their private vehicle for business purposes

It can be a practical alternative to claiming actual vehicle expenses, provided the relevant requirements are met.

Keep Good Records

Even when using the kilometre rates, maintaining accurate records remains essential.

You should keep:

• A logbook recording business travel

• Opening and closing odometer readings

• Dates and purposes of business trips

• Supporting documentation where appropriate

Good record-keeping helps support your claim if Inland Revenue requests further information.

Choosing the Right Method

The kilometre rate method is not always the most beneficial option. Depending on your circumstances, claiming actual vehicle expenses may produce a larger deduction, particularly where business use is high or operating costs exceed the standard rates.

Before preparing your tax return, it is worth reviewing which method provides the best outcome while remaining compliant with IRD requirements.

Final Thoughts

The updated 2025–2026 kilometre rates provide a straightforward way for many taxpayers to calculate deductible vehicle expenses. However, using the correct rates, understanding how Tier 1 and Tier 2 apply, and maintaining accurate records are all critical to ensuring your claim is accurate.

If you're unsure whether the kilometre rate method or actual cost method is right for your business, Tax Professionals can help you determine the most tax-efficient approach and ensure your vehicle expense claims comply with IRD requirements.