Latest Mileage Rates and Claimable Mileage

[nutty]

1. Mileage Rates
Has IRD updated the mileage rates that can be used for use of private motor vehicle for IP purposes? The rates I find on their website seem to be 10 years old, i.e $0.62/km up to 3,000km then $0.19 thereafter.

2. Claimable Mileage
On a previous thread, there did not seem to be consensus on whether mileage is capital or expensed when looking for new property. Anyone have any latest advice?

Thanks in advance.

[David_W]

Mileage

1) I understand that the IRD Mileage rates have remained constant. However on 16 September 2005 the IRD approved the AA mileage rates. So if you have a medium or large sized car you can claim $1.04 per km for checking your rental properties. See:

http://www.woodwalton.co.nz/index.cfm/newsletter_archive/december_2005.html

2) I understand that you should capitalise and depreciate mileage when looking for a property to purchase. This is because there is only a weak case that there is a nexus between deriving gross income (earning rents) and the trip to visit properties. The IRD have argued that this is too remote. I am conservative so choose to capitalise this, but I know many (possibly most?) investors claim it and have had no issue.

Hope that this helps you nutty

[Perry]

Didn't the mileage issue eventually get a sort-of double
treatment? Wasn't the main difference whether or not
the PI already had properties? That seemed to mean
that there was nothing claimable while the soon-to-be
PI looked for property #1, but, when searching for more,
all was claimable?

[BusyLizzy]

I've been wondering whether or not the mileage rates will go up given the recent increases in petrol over the last few months!

[CJ]

The actual IRD rate was devised when Noah was filling up his ark with Petrol so is currently a little out of date.

As David said, you can now use the AA rates which take into account all things, not just petrol (ie, tires, insurance and depreciation, size of car, maintenance etc). This gets updated annually - not sure what time of year though.

[masteraccountants]

Deductibilty of MV Travel to view properties

Hi,

The question comes up many times about whether looking for properties is deductible or not depending on whether or not you actually buy a property.

The relevant case is Milburn NZ Limited & Anor c C of IR (2001) 20 NZTC 17,017 that was heard in the High Court (NZ) and IRD's exposure draft IS 2783 that agrees with the approach used in the case.

Once you establish that you are in the business of rental property investment, then any rental feasibility expenses are 100% deductible in the year of expenditure.

When you commit to buying a property, then the costs are supposed to be capitalized to the cost of acquiring the property. Some expenses like motor vehicle travel might be small and always be treated as deductible, whereas airfares would be capitalized from the time that the commitment has been made to buy the property.

New Zealand has mainly subjective tests of when or if you are in business, so establishing yourself as being in the business of rental property investment might not be as onerous as it might seem on first thought.

[nutty]

Thanks for your replies.

Chris, if I capitalise airfares or other travel expenses, is this depreciable and, if so, at what rate?

[masteraccountants]

Hi Nutty,

If you decide to capitalize your travel expenses, they would be depreciated at 3% - the current rate for buildings.

So if you can say that you incurred the travel expenses before you made a commitment to purchase a particular property - the usual situation - then you could claim the travel expense as a 100% deduction in the year of expenditure.

[masteraccountants]

Higher kilometre rates claimable for employees

Hi,

Just in case some investors get excited thinking they can claim the higher AA rates allowed by IRD, the fine print is that these are allowed by employers to reimburse employees for business use of their private motor vehicles.

These new rates are not allowed to be claimed by the self-employed or shareholder-employees. So investors could not claim those rates.

They are restricted to the rates of 62 cents up to 3000 kilometres and 19 cents for the next 2000 kilometres. The maximum claim is for 5000 kilometres using the kilometre method.

[CJ]

If you decide to capitalize your travel expenses, they would be depreciated at 3% - the current rate for buildings.

Wouldn't part of the airfare be attributed to the land (therefore 0% depn) and some to chattels (higher than 3% depn)? ie if 31% of purchase price is land, the 31% of airfare is attributed to land.

These new rates are not allowed to be claimed by the self-employed or shareholder-employees. So investors could not claim those rates.

This depends on you structure as to what you fall into. thanks for pointing that out.

[sweetpea]

thanks masteraccountants - good to know! glad i have been doing it right