SHOULD I GET THE COMPANY TO BUY ME A CAR?

By Garreth Collard, Senior Property Accountant | September 20, 2023

Should I get the company to buy me a car? It depends, first, on whether your company is a Look-Through Company (LTC) or a standard company. If it’s an LTC, there may be little or no Fringe Benefit Tax (FBT) to pay. See Can My LTC Buy Me a Company Car? Will I Have to Pay FBT? for that scenario specifically. For a standard company, FBT needs proper consideration, and that’s what this guide works through.

30-Second Read

Own the vehicle personally and use it for business, and you claim a portion of costs — via a logbook-based percentage or IRD’s kilometre rates — rather than the whole cost.
The company owns the vehicle, and FBT generally applies for any private use, unless a specific exemption applies.
FBT on a company vehicle uses one of three methods. Cost price is 5% of the cost price per quarter (20% annually). Tax book value is 9% per quarter (36% annually), with an $8,333 minimum value. These rates assume the GST-inclusive price. If you use the GST-exclusive price, higher rates apply.
The standard FBT single rate is 63.93%. That’s different from the older 49.25% rate some calculators and older guides still quote — 49.25% is now the alternate rate for lower-income employees, not the default.
If you claim Investment Boost on a vehicle, higher tax book value rates apply from 1 April 2026: 10.35% a quarter and 41.40% annually (GST-inclusive). The minimum value drops to $7,317.
A close company with one or two vehicles for shareholder-employees, and no other fringe benefits, can opt out of FBT and use the income tax vehicle rules instead. It can’t go back to FBT for that vehicle.
From 1 April 2027, a proposed six-category system would replace the work-related vehicle exemption and the exempt-day count.
There’s no one right method. Running the numbers both ways, for your specific vehicle and usage, is the only way to know which costs less.

Updated October 2026, we work through both ways to use a vehicle, the FBT mechanics, a worked example, and what to do next.

Three Ways to Use a Vehicle in Your Business

1. Business Use of a Private Vehicle

This means you own the vehicle personally, and use it partly for business. You can claim a portion of the running costs as a business expense. The exact percentage depends on your actual business use, established either by keeping a logbook(opens in new tab) over a representative period, or using IRD’s standard kilometre rates(opens in new tab). There are specific rules and record-keeping requirements either way. It’s worth getting the mechanics right before you rely on a claim.

2. Company-Owned Vehicle

Here, the company owns the vehicle, and FBT generally applies to any private use. Some situations are exempt — a vehicle genuinely restricted to work use, for instance. The work-related vehicle exemption has five tests: vehicle type, 3,500kg limit, designed to carry goods, permanent branding and a written restriction. There are also the emergency call-out and business travel exemptions.

For most small business owners with a company car available for private use, though, some FBT liability is the norm, unless a personal contribution is made instead to cover the private-use cost. To read about the sweeping changes coming to FBT on 1 April 2027, read our in-depth guide here.

3. Company-Owned Vehicle With the Close-Company Opt-Out

A close company with one or two vehicles can opt out of FBT and use the income tax vehicle rules. We explain it below.

Fringe Benefit Tax (FBT)

What is it? FBT is tax paid on a non-cash benefit you receive from your company — something that isn’t wages, but still has real value to you. The law requires tax on that value.

How is it paid? You elect an FBT filing basis with IRD and pay according to that schedule. Annual returns are for employees who aren’t shareholder-employees. A close company providing benefits to shareholder-employees files quarterly or elects income-year returns. The election has conditions, and IRD doesn’t accept late ones.

Is it compulsory? It depends on your circumstances. There’s no single answer that fits every business. This is worth discussing with your accountant rather than assuming either way.

How FBT on a Vehicle Is Calculated

There are two methods for working out the taxable value of a company vehicle available for private use:

Cost price method: 5% of the vehicle’s GST-inclusive cost price per quarter (20% annually). This stays fixed regardless of how much the vehicle has depreciated.
Tax book value method: 9% of the vehicle’s GST-inclusive depreciated value per quarter (36% annually), with a floor — the tax book value used can’t fall below $8,333 (GST-inclusive).

Either taxable value then gets multiplied by the applicable FBT rate. The standard single rate is 63.93% — this is the rate most small businesses use by default. A lower alternate rate of 49.25% is available for benefits attributed to employees on lower total remuneration. It comes with more detailed record-keeping and quarterly reconciliation requirements, though.

Investment Boost

From 1 April 2026, new rates apply to the tax book value method if you claimed Investment Boost on the vehicle. The tax book value is the cost, less the Investment Boost deduction, less depreciation. The rates are 10.35% a quarter and 41.40% annually (GST-inclusive). The minimum tax book value is $7,317. Cost price isn’t reduced by Investment Boost. Investment Boost vehicles must also be kept in a separate pool.

GST-Inclusive or GST-Exclusive?

Both methods can use the GST-inclusive or GST-exclusive price. If you use the GST-exclusive price, higher rates apply. IRD’s IR 409 guide sets them out:

Each GST-exclusive rate is the GST-inclusive rate multiplied by 1.15. A $50,000 GST-inclusive cost price at 20% gives $10,000. The GST-exclusive price of $43,478 at 23% also gives $10,000. Use the rates that match the price you hold. Don’t pair a GST-inclusive price with a GST-exclusive rate. Our examples below use GST-inclusive prices.

Worked Example

Say your company owns a vehicle purchased for $50,000 (GST-inclusive), available to you for private use for a full quarter, with no personal contribution made.

Cost price method:

Quarterly taxable value: 5% × $50,000 = $2,500
Annual taxable value: 20% × $50,000 = $10,000
Annual FBT at the single rate: $10,000 × 63.93% = $6,393

Tax book value method, assuming the vehicle has since depreciated to a tax book value of $20,000:

Quarterly taxable value: 9% × $20,000 = $1,800
Annual taxable value: 36% × $20,000 = $7,200
Annual FBT at the single rate: $7,200 × 63.93% = $4,603 (rounded)

In this example, the tax book value method costs less overall, since the vehicle has depreciated well below its original cost. Cost price stays fixed no matter how old the vehicle gets. More FBT is payable using tax book value in the early years. Once you choose a method, you must keep it for up to five years. Many companies start with cost price. Once five years have passed since the first FBT return for the vehicle, you can choose again. Tax book value tends to cost less once the vehicle has depreciated well below its cost. It never falls below a minimum value of $8,333, or $7,317 if Investment Boost was claimed.

If the vehicle isn’t available for the full quarter, the taxable value is pro-rated. Multiply by the number of days actually available, divided by 90 for quarterly and annual returns. Income-year returns divide by 365.

The Close-Company Opt-Out

A close company can opt out of FBT on its vehicles and use the income tax vehicle rules instead. [IRD explains the option in IR 409.]

Who qualifies? A close company has five or fewer natural persons or trustees who hold more than 50% of the voting or market value interests. To opt out, the company must also:

have only one or two vehicles available for shareholder-employees’ private use, and
provide no other fringe benefits.

How does it work? The company pays no FBT on those vehicles. It makes private use adjustments for income tax and GST instead. A logbook establishes the business-use percentage, and the company claims only the business share. IRD’s vehicle expenses page covers the logbook rules.

When must you elect? The election is valid only if made by the income tax return due date in the year the company acquires the vehicle or first uses it for business. Tell IRD by myIR message or a note on a paper return. If the company is already registered for FBT and the election is on time, it should cancel the FBT registration.

Can you change your mind? Not for that vehicle. The company can’t return to FBT unless it disposes of the vehicle or stops using it for business.

Worked example. Kahu is the only shareholder-employee of a close company. The company buys a $50,000 SUV for Kahu and provides no other fringe benefits. Kahu uses it mainly for private trips. A 90-day logbook shows 20% business use. Running costs are $9,000 a year.

Under FBT, the company pays about $6,393 a year at the single rate. With the opt-out, the company pays no FBT. It claims 20% of the costs, which is $1,800. The other $7,200 isn’t deductible. At the 28% company rate, that costs about $2,016 in tax. Here the opt-out costs less, before allowing for any deduction the company gets for the FBT itself. Run your own numbers before electing, because you can’t reverse it.

What Changes on 1 April 2027

The Taxation (Annual Rates for 2026–27, FBT Simplification, Foreign Investment Funds, and Remedial Measures) Bill was introduced on 10 September 2026. It would replace today’s exemptions and day-counting with six categories. Our Motor Vehicle FBT Changes guide covers the detail.

No more exempt days. The work-related vehicle, emergency call-out and business travel exemptions go. Days when the vehicle is unavailable no longer reduce the value.
Six categories. The default Category 1 is 100%. Category 2 is 35%. Category 3 (farm vehicles) is 35%. Category 4 is 20%. Categories 5 and 6 are 0%.
Branding. Categories 2, 4 and 5 need permanent branding. Vehicles bought or leased before 10 September 2026 are exempt from this.
Rates. Petrol and diesel stay at 20% on the cost basis. Hybrids are 19.6% and electric vehicles 17%.

A $50,000 car with unrestricted private use is Category 1: $50,000 × 20% × 100% = $10,000, so FBT is $6,393 at 63.93%. In Category 2 (35%) the taxable value is $3,500 and FBT about $2,238. Category 2 needs branding and restricted private use, so it won’t suit most owner-driven cars.

The Bill may change before it passes, and the 7 November general election adds uncertainty.

What Should I Do?

Run the numbers both ways for your specific vehicle. Use your actual figures rather than assuming one method is always better. If you want to opt out, decide on the opt-out before the return due date for the year you buy the vehicle.

The right answer depends on the vehicle’s cost, its age, how it depreciates, and how long you intend to keep it. Talk to us about which method suits your situation before you commit to one.