The 2025–26 income year ended 31 March 2026 — which means your IR3 return is due by 7 July 2026 if you file yourself. If you're a self-employed tradie using the IRD kilometre rate method to claim vehicle expenses, now is the time to add up your logbook kilometres and lock in your deduction.
Here's everything you need to know about the updated 2025–26 IRD kilometre rates and how to make the most of your vehicle claim.
What Are IRD Kilometre Rates?
IRD kilometre rates let self-employed tradies claim a set amount per kilometre driven for business — without needing to track every fuel receipt, WOF, or service invoice. You simply multiply your business kilometres by the applicable rate.
IRD reviews these rates each income year based on average vehicle running costs (fuel, insurance, registration, depreciation, and maintenance). For 2025–26, the rates have been updated — and for petrol and diesel vehicles, the Tier 1 rate has increased compared to prior years.
2025–26 IRD Kilometre Rates
| Vehicle Type | Tier 1 (first 14,000 km) | Tier 2 (over 14,000 km) |
|---|---|---|
| Petrol or diesel | $1.04/km | $0.35/km |
| Hybrid (petrol-electric) | $0.83/km | $0.20/km |
| Electric | $0.09/km | $0.09/km |
Always verify the current rates at ird.govt.nz before filing. IRD publishes updated rates in their "Kilometre rates for the business use of vehicles" guidance each year.
Tier 1 vs Tier 2 — What's the Difference?
The two-tier system reflects the fact that the first 14,000 km of business travel in any given vehicle typically includes higher depreciation and fixed costs (e.g. registration, insurance). After 14,000 km, you're mainly covering running costs like fuel.
- Tier 1 covers the full cost of running the vehicle: depreciation, insurance, registration, tyres, maintenance, and fuel.
- Tier 2 covers fuel and direct running costs only.
For most NZ tradies who drive a work ute or van, the Tier 1 rate at $1.04/km is the one that matters most — especially if your business kilometres are under 14,000 for the year.
How Much Can You Actually Claim?
Use the Vehicle Mileage Calculator to work out your exact deduction, but here's a quick example:
Scenario: You're a self-employed plumber in Auckland. Over the 2025–26 year you drove 18,500 km for business.
| Portion | Km | Rate | Deduction |
|---|---|---|---|
| Tier 1 | 14,000 | $1.04 | $14,560 |
| Tier 2 | 4,500 | $0.35 | $1,575 |
| Total | 18,500 | $16,135 |
At a 33% tax rate, that's roughly $5,325 off your tax bill — just from your vehicle. That's a meaningful saving for a sole trader filing an IR3.
Who Can Use the Kilometre Rate Method?
You can use IRD kilometre rates if you are:
- A self-employed sole trader (most tradies)
- A shareholder-employee of a close company (with some restrictions)
- Using your own vehicle for business purposes
You cannot use kilometre rates for a vehicle owned by a company, partnership, or trust — those must use the actual costs method.
Record-Keeping: What IRD Expects
This is where a lot of tradies fall short. The kilometre rate method is simple, but it still requires proper records. IRD requires:
- A business kilometre log — the date, origin, destination, purpose, and km for each business trip
- A logbook — covering at least 90 consecutive days to establish your business-use percentage if you also use the vehicle privately
IRD's guidance (IS 24/01) is clear: if your vehicle is exclusively for business, you can claim 100% of the kilometres. If it's a mixed-use vehicle (e.g. you drive it to work sites but also use it personally on weekends), you must separate business from private kilometres.
A simple mileage tracking app — or even a paper log — is enough to satisfy IRD. The key is consistency.
Should You Use Km Rates or Actual Costs?
The kilometre rate method is convenient, but it's not always the highest deduction. The actual costs method involves tracking all vehicle expenses (fuel, oil, tyres, WOF, registration, insurance, loan interest, depreciation) and claiming the business-use percentage.
Use km rates if: - Your total business km is relatively low (under ~15,000 km) - You don't want the admin of tracking every receipt - Your vehicle is older and low in value (so depreciation is minimal)
Use actual costs if: - You drive a high-value ute or van that's depreciating quickly - You have a high business-use percentage and significant expenses - You want to maximise your claim using the Depreciation Calculator
You can only pick one method per vehicle per year — you can't mix and match.
Electric and Hybrid Tradies: A Growing Opportunity
The $0.09/km rate for electric vehicles looks low, but that's intentional — it reflects the much cheaper cost of running an EV per kilometre. The real financial advantage for EV-driving tradies comes from:
- Lower running costs (electricity vs fuel)
- Depreciation deductions under actual costs
- Reduced ACC levies on some electric commercial vehicles
If you're considering switching your work vehicle to electric, talk to your accountant about whether the actual costs method might deliver a better deduction than the flat km rate.
GST and Vehicle Expenses
If you're registered for GST, there's a separate layer to think about. The kilometre rate method for income tax is not the same as GST on vehicle expenses. For GST, you must:
- Track actual vehicle expenses
- Claim GST on the business-use portion only
- Apportion based on a logbook or estimated business percentage
Use the GST Calculator to check your GST position, and make sure you're not double-counting.
Common IRD Audit Triggers for Vehicle Claims
WorkSafe and IRD increasingly cross-reference self-employment data. Watch out for these red flags:
- Claiming 100% business use on a vehicle that's also your only personal transport
- No logbook but a large km claim
- Claiming more km than your actual work pattern would justify (e.g. a sole plumber claiming 40,000 km)
- Inconsistency between km claimed and fuel receipts
If IRD queries your vehicle claim, a well-maintained digital mileage log will protect you. Apps like Fastcrew (fastcrew.nz) can help you track job-related travel alongside your invoicing, making it easy to reconcile km with actual jobs attended.
Key Dates for the 2025–26 Year
- 31 March 2026 — 2025–26 income year ended
- 7 July 2026 — IR3 due date for self-filers without a tax agent
- 31 March 2027 — IR3 extended due date if using a tax agent
If you're self-filing and haven't started your IR3 yet, you have around six weeks. Getting your vehicle mileage sorted now means you won't miss out on one of the biggest deductions available to NZ tradies.
Download our free NZ tradie templates at tradietools.nz/templates/ — including a vehicle logbook template, job costing spreadsheet, and IR3 checklist for sole traders.
NZ Tradie Tools provides free calculators, templates and guides for New Zealand tradies. Visit tradietools.nz.