Inland Revenue recently released the motor vehicle mileage rates for the 2025 income year. 

These rates are set from third party data made available to Inland Revenue, and can be used by a taxpayer to calculate the income tax deduction for the business use of motor vehicles. 

The rates cannot be used by a company (other than a close company) or an employee to claim a tax deduction, nor can they be used for a vehicle that is used wholly for business use, or a vehicle that is subject to Fringe Benefit Tax.  The rates are reproduced in the table below.

Previously, Inland Revenue set a single Tier One rate for all vehicle types.  Due to the fact there are more electric vehicles in New Zealand, and a significant variation in running costs between the different vehicle types, there is now a separate Tier One and Tier Two rate for each vehicle type. 

 As the Tier One rate was previously an average of the running costs of all vehicle types, there are significant differences in Tier One rates for the 2024/25 income year.  The Tier One rates for petrol and diesel vehicles have increased significantly whereas the Tier One rate for petrol hybrids have decreased significantly.

 Some employers have been highly critical of moving away from one Tier One rate for all vehicle types.  This is on the basis they need to be reimburse employees, who use their personal petrol or diesel vehicles for business use, at a much higher rate than previous.  As mentioned above, the mileage rates are set by Inland Revenue for certain taxpayers to calculate income tax deductions for motor vehicle expenditure – the rates are not set to determine how much an employer must reimburse an employee for the business use of their personal vehicle.

 Employers are free to use whatever rate they wish to reimburse employees for business use of their personal vehicle.  There are some employers who use Inland Revenue’s mileage rates to determine the amount they reimburse their employees - there is no legislative requirement for them to do this.  However, it should be noted that if an employer was to reimburse an employee at a rate higher than Inland Revenue mileage rates, then it is likely the reimbursement more than the mileage rate would be taxable to the employee and subject to PAYE.