Blog 6 - New IRD Kilometer Rates for 2025

IRD Kilometer Rates Released for 2025

The IRD has released its updated kilometer rates for the 2025 tax year (covering the 2024/2025 financial year). These rates are used to calculate motor vehicle deductions for self-employed business owners or close companies where a vehicle is used for business purposes.

You’ve got two options when claiming these expenses:

• Cost method – claim the business portion of actual vehicle costs
• Kilometer rate method – use the set rates from the IRD

If you're reimbursing yourself or employees at or below the set kilometer rates, these payments can be made tax-free.

While not compulsory, these rates are commonly used by employers to reimburse team members who use their own vehicles for work-related travel. You can pay a higher rate or use actual costs instead, but you’ll need to keep solid records to back it up.

What’s changed?

There are now eight rates in total – a jump from the previous setup of one Tier One rate and three Tier Two rates.

Tier One covers the first 14,000 km the vehicle travels each year. After that, the Tier Two rates apply.

Using the Rates for Business Deductions

If a vehicle is used for both business and personal purposes, you’ll need to work out the business-use portion. You can do this using the cost method or the Kilometer rate method.

These 2025 rates (for the 2024/2025 income year) help estimate vehicle-related expenses that can be claimed as a business deduction.

 Using the Rates to Reimburse Employees

While the kilometer rates are primarily there to help with business expense claims, many employers also use them to reimburse employees for work travel in their private vehicles.

The IRD accepts the use of these rates as a reasonable estimate of expenditure, but it’s not the only way to go. If the rates no longer reflect current costs or if it’s tricky to determine what kind of vehicle each employee drives, a blended average of the published rates may be acceptable – as long as it still reflects a fair estimate.

More guidance is available in Operational Statement OS 19/04b, which outlines the IRD’s position on tax-free reimbursements.

Charging Clients for Travel?

One common mix-up: the IRD’s kilometee rates don’t apply when you’re charging clients for travel. What you bill is entirely up to you and should be agreed in advance. If you’re GST registered, any travel charge to a client must include GST and is counted as income.

 Source: IRD Tax Technical – OS 19/04 (KM 25)

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