IRD Kilometre Rate 2025-26: Claiming Vehicle Expenses Without a Logbook

If you use your personal vehicle for business in New Zealand, the IRD kilometre rate is the quietly powerful tool that lets you claim deductions without keeping fuel receipts, repair invoices, or depreciation schedules. For the right driver — a tradie, mobile beautician, real estate agent, or any sole trader doing meaningful business mileage — the kilometre rate can beat the actual cost method by thousands of dollars per year, and it does so with a fraction of the admin.

But it’s not free money. The rate has a two-tier structure, a hard 14,000 km Tier 1 ceiling, an eligibility carve-out that locks out companies, and a “no logbook, no claim” record-keeping requirement that catches a lot of sole traders by surprise at IR3 time. This guide walks through how the rate works for the 2025-26 income year, when it beats the actual cost method, and when the 90-day logbook fallback is a smarter middle ground.

What the IRD kilometre rate is

The kilometre rate is a per-kilometre amount, published annually by Inland Revenue, that you can use to claim a deduction for the business use of a motor vehicle. It is set out in the Tax Administration Act and supported by IRD’s annual operational publication.

What it covers in a single per-km figure:

• Fuel and oil
• Vehicle registration and licensing fees
• Insurance
• Repairs and maintenance
• Tyres
• Depreciation
• Interest on any loan used to buy the vehicle (Tier 1 only)
• Road User Charges (RUC) for diesel and EVs

What it replaces: the need to keep every fuel receipt, calculate annual depreciation, work out the business-use percentage of insurance and registration, and apportion repair invoices. In exchange for that simplicity, you accept a fixed rate per business kilometre rather than your actual cost.

The rate is published by IRD shortly after each tax year ends. For the 2025-26 income year (1 April 2025 to 31 March 2026), check IRD’s published table directly before filing your IR3 — the rates are reviewed annually to reflect changes in fuel prices, vehicle costs, and RUC. As a directional reference, the 2024-25 petrol rates were approximately Tier 1 $1.04/km and Tier 2 $0.35/km, with separate rates for diesel, petrol hybrid, and electric vehicles.

The two-tier structure

This is the most misunderstood part of the kilometre rate. IRD operates two tiers, not one, and the tiers are determined by total kilometres driven (business + private), not business kilometres alone.

Tier 1: the first 14,000 km of total use

Tier 1 covers the first 14,000 kilometres you drive in the income year, regardless of whether those kilometres are business or private. The Tier 1 rate is higher because it absorbs the fixed costs of owning a vehicle — depreciation, registration, insurance, and loan interest — which you incur whether the car sits in the driveway or runs 20,000 km a year.

When you claim, you apply the Tier 1 rate to the business portion of those first 14,000 km. So if you drove 14,000 km total in the year and 60% was business (8,400 km), you’d claim 8,400 × Tier 1 rate.

Tier 2: every kilometre beyond 14,000

Tier 2 applies once you exceed 14,000 km total in the year. The Tier 2 rate is lower because the fixed costs are already covered by Tier 1 — Tier 2 is essentially running costs only: fuel, oil, tyres, incremental wear.

If you drove 30,000 km total with 70% business use, your claim is:

• Tier 1: 14,000 km × 70% × Tier 1 rate
• Tier 2: 16,000 km × 70% × Tier 2 rate

Total claim = sum of both tier calculations.

Different rates by fuel type

IRD publishes separate Tier 1 and Tier 2 rates for:

• Petrol vehicles
• Diesel vehicles (lower Tier 2 because of RUC inclusion)
• Petrol hybrid vehicles
• Electric vehicles (typically lowest, no fuel cost)

Motorcycles have a separate, lower combined rate that does not use the two-tier structure.

Who can use the kilometre rate

The rate is available to:

• Sole traders using a personally owned vehicle for business
• Partners in partnerships using a personally owned vehicle for partnership business
• Beneficiaries of trusts in certain circumstances

The rate is not available to:

• Companies (including look-through companies for vehicle expense purposes) — companies must use the actual cost method, with logbook substantiation, and account for FBT if a company vehicle is available for private use
• Vehicles already in a business asset register that are subject to depreciation deductions — you cannot double-dip
• Self-employed people who choose actual cost method — the choice is per vehicle per year and is binding for that year

If you operate through a company structure but the vehicle is personally owned and only occasionally used for company business, you would typically charge the company a mileage reimbursement (using the IRD rate as a benchmark) rather than the company claiming a vehicle deduction.

Business kilometres only — and commute is not business

This is the rule that catches most people. A “business kilometre” is one driven for a business purpose — visiting a client, collecting materials from a supplier, delivering goods, travelling between two work sites.

What does NOT count as business:

• Your commute from home to your regular place of business — even if you stop at the post office on the way
• Personal trips taken in a vehicle used for business
• Lunch runs, school pickups, weekend errands

What DOES count:

• Travel between work sites once you’ve started your business day
• Client visits away from your base
• Supplier and material pickups
• Travel to a temporary work site different from your usual base (e.g. tradies on a specific project)

If you work from home and your home is your principal place of business, you can typically count travel from home to a client site as business — but be ready to substantiate that home-office status with the same evidence you’d use for a home office deduction.

The 90-day logbook fallback — when actual cost method makes sense

For drivers with very high business-use percentages (think: a courier or rideshare driver with 85%+ business use), the actual cost method can return a larger deduction than the kilometre rate — but it requires substantiation.

Under the actual cost method, you claim:

Business proportion × (fuel + RUC + insurance + rego + repairs + tyres + depreciation + interest)

The business proportion is established by either:

1. Detailed daily logbook for the entire income year (every trip recorded), or
2. A 90-day representative logbook kept once every 3 years

The 90-day logbook option is the practical middle ground. Keep a complete logbook for any 90 consecutive days, calculate your business-use percentage from that sample, and you can apply that percentage to your actual costs for up to three income years (provided your usage pattern doesn’t materially change).

A “logbook” can be:

• A paper logbook
• A spreadsheet
• A vehicle-tracking app (Driversnote, MileIQ, TripCatcher, etc.)
• Your accounting software’s mileage tracker

It must record: date, start/end odometer, kilometres, purpose, and (for business trips) the client/destination.

Worked example A: tradie with moderate mileage

Mike runs a one-person plumbing business as a sole trader. In the 2025-26 income year he drove 12,000 km total, all of it business (he has a separate family car for personal use).

Kilometre rate method (using directional 2024-25 rates as proxy — verify with IRD’s 2025-26 publication):

• Total km: 12,000 (all business, all within Tier 1)
• Tier 1 claim: 12,000 × $1.04 = $12,480

Actual cost method estimate:

• Fuel: $3,200
• Insurance: $1,400
• Registration + WoF: $300
• Repairs and tyres: $1,800
• Depreciation (on $25,000 ute, DV method at 30%): $7,500
• Total vehicle costs: $14,200
• Business proportion: 100%
• Actual claim: $14,200

Result: actual cost wins by ~$1,720 in Year 1 because depreciation is front-loaded. But by Year 3, depreciation drops sharply (DV on a declining base) and the kilometre rate catches up and overtakes.

For a tradie with a moderately-priced vehicle and substantial business km, the answer depends on which year you’re in for that vehicle. In Year 1 of a new ute, actual cost often wins. By Years 4-5, the kilometre rate is almost always better because depreciation has tailed off.

Worked example B: high-mileage courier

Aroha runs a same-day courier business as a sole trader, using a 4-year-old van. In 2025-26 she drove 35,000 km total, of which 31,500 km (90%) was business.

Kilometre rate method:

• Tier 1: 14,000 km × 90% × $1.04 = $13,104
• Tier 2: 21,000 km × 90% × $0.35 = $6,615
• Total claim: $19,719

Actual cost method estimate:

• Fuel: $7,800
• Insurance: $1,600
• Rego + WoF: $300
• Repairs, tyres, servicing: $3,200
• Depreciation (van now on lower DV base): $4,500
• Interest (residual loan): $1,400
• Total vehicle costs: $18,800
• Business proportion: 90%
• Actual claim: $16,920

Result: kilometre rate wins by ~$2,800. Aroha gets a bigger deduction AND zero monthly admin (no fuel receipts to file, no depreciation calculation). The Tier 2 rate at $0.35/km comfortably exceeds her marginal running cost per kilometre, and the kilometre rate’s implicit “fixed-cost recovery” in Tier 1 is generous for a depreciation-tailing-off van.

Decision rule of thumb:

• Low business km (<5,000) → actual cost almost always wins (rate ceiling too low to absorb fixed costs)
• 5,000–14,000 business km → close call, model both
• 14,000–25,000 business km → kilometre rate usually wins, especially on older vehicles
• 25,000+ business km → actual cost can pull ahead if business use is very high (95%+) AND the vehicle is newer with significant depreciation left

EV and motorcycle specifics

Electric vehicles: IRD publishes separate (lower) Tier 1 and Tier 2 rates for EVs to reflect the absence of fuel costs. The Tier 1 rate is still meaningful because it absorbs higher upfront depreciation on EVs, but Tier 2 is well below petrol equivalents — typically in the 10c/km range. RUC for EVs (introduced April 2024 for light EVs) is included in the rate.

Petrol hybrids: A specific intermediate rate that sits between petrol and EV, reflecting partial electric driving.

Motorcycles: A single combined rate (no Tier 1/Tier 2 split), typically lower than car rates. Check IRD’s current publication for the specific motorcycle rate.

Record keeping required — even for the kilometre rate

A common misconception: “kilometre rate = no records needed.” Wrong. You still need to substantiate your business kilometres with contemporaneous records. The kilometre rate replaces the cost substantiation, not the kilometre substantiation.

Acceptable records:

• Odometer readings at start and end of income year (mandatory)
• Trip log showing date, destination, business purpose, and km for each business trip — paper, spreadsheet, or app
• Monthly summary if you do regular repeat trips on a fixed route (e.g. a community nurse visiting the same suburbs)
• Client invoices or job records that corroborate the trips you logged

No log = no claim. If IRD reviews your return and asks for substantiation of your business km, “I just estimated” is not an acceptable answer. They can disallow the entire deduction.

Putting it together — the IR3 line

On your IR3, vehicle expense deductions claimed under either method go into your business income schedule. Depreciation captured in the kilometre rate is NOT separately deducted — the rate is comprehensive. If you switch from actual cost to kilometre rate in a later year, you’ll typically also stop claiming depreciation separately for that vehicle.

If your vehicle is registered as a business asset, switching to the kilometre rate may have GST and asset-register implications. Check with your accountant or use IRD’s guidance before switching mid-life.

Try the calculator

If you want to see how vehicle expenses fit into your overall self-employed tax picture — including income tax, ACC levies, and net take-home — try the Self-Employment Tax Calculator. It runs the year-end numbers on your business income net of deductions and shows your liability across PAYE-equivalent brackets and ACC.

Related reading

• Home office expenses for self-employed — the other big deduction that sole traders routinely under-claim, with its own square-metre and time-based methods.
• Provisional tax for self-employed — how IRD requires you to pre-pay tax through the year on business income, and why your vehicle deduction matters for setting accurate instalments.
• Side hustle tax NZ — for people who do business kilometres on top of a PAYE day job, how the kilometre rate works against your second income.

Sources

• Kilometre rates for the business use of vehicles — IRD
• Vehicle expenses — IRD
• IR260 Depreciation Guide — IRD
• Income Tax Act 2007 — subpart DE (motor vehicle expenditure)