Close Company Vehicle: FBT vs Income Tax Apportionment Calculator

If your close company provides a vehicle to a shareholder-employee for private use, you face an annual choice: pay Fringe Benefit Tax based on availability, or elect under section CX 17 of the Income Tax Act 2007 to opt out of FBT and apportion the vehicle's costs between business and private use through the income tax return. This calculator compares all three options side by side: FBT using the cost price method, FBT using the tax book value method, and the opt-out path with either actual costs or IRD kilometre rates. The output is the net after-tax cost to the company under each path, so you can pick the cheapest.

The close company vehicle question

Tens of thousands of NZ close companies face the same annual decision around their shareholder-employee's vehicle: should the company pay FBT on the vehicle's availability for private use, or opt out of FBT under section CX 17 and instead apportion the vehicle's running costs and depreciation between business and private use through the income tax return? The choice can save thousands of dollars per year, but it depends on the interaction of vehicle cost, age, running costs, business use percentage, and the company tax rate.

How the FBT method works

Under the standard FBT rules, the company pays FBT each quarter on the value of the vehicle's availability for private use, regardless of how much actual private travel occurs. The taxable value is calculated using either the cost price method (5% per quarter on the GST-inclusive cost price, equivalent to 20% per annum) or the tax book value method (9% per quarter on the depreciated GST-inclusive tax book value, with a $8,333 floor). The FBT itself is deductible against the company's income tax, so the after-tax cost is the FBT amount minus 28% (the company tax saving on the deduction).

All vehicle running costs and depreciation are 100% deductible to the company under this method. The trade-off is that the FBT charge is fixed regardless of how little the vehicle is actually used privately, so a vehicle that sits in the driveway 80% of the time still attracts a full year of FBT.

How the opt-out (apportionment) method works

Section CX 17 of the Income Tax Act 2007, introduced for the 2017-18 income year, allows a close company with one or two vehicles available for shareholder-employee private use to elect out of the FBT rules. The company applies subpart DE motor vehicle expenditure rules instead. Vehicle costs (running, depreciation, finance) are apportioned between business and private use based on either logbook records or the Commissioner's kilometre rates. The business portion is deductible to the company; the private portion is treated as drawings (non-deductible) for the shareholder-employee. No FBT is payable.

The election is made by attaching a written note to the income tax return for the year the vehicle is acquired or first used for business. Once made, the election applies to that vehicle until the company disposes of it or stops using it for business. The election cannot be reversed.

When does each method win?

• Opt-out wins when business use is high. If the vehicle is used 70-80% for business, only 20-30% of running costs and depreciation become non-deductible drawings, while the FBT method would charge availability-based FBT on the full vehicle cost.
• Opt-out wins when the vehicle is expensive but running costs are low. A $60k vehicle with $4k of annual running costs attracts $7,672 of annual FBT (20% × 60k × 63.93%), but only $4k of opt-out drawings even if private use is 100%.
• FBT wins when business use is low and running costs are high. A $20k delivery van with $25k of annual fuel and maintenance, used 20% privately, would have $20k of running costs reclassified as drawings under opt-out (huge non-deductible amount), while the FBT method only charges $2,557 in FBT (20% × 20k × 63.93%).
• Tax book value method wins as the vehicle ages. Once a vehicle has depreciated significantly, the tax book value (capped at the $8,333 floor) gives a much lower FBT charge than the original cost price. This makes FBT increasingly attractive over time for older vehicles.

IRD kilometre rates as an opt-out option

If the company opts out, it can use the Commissioner's kilometre rates instead of tracking actual costs. The 2024-25 rates (applied for 2025-26 returns) are: Tier 1 (combined fixed and running, applied to the business portion of the first 14,000 km) at $1.17/km petrol, $1.26/km diesel, $0.86/km petrol hybrid, $1.08/km electric. Tier 2 (running costs only, applied to the business portion of any travel above 14,000 km) at 37c/35c/21c/19c per km respectively. The kilometre rate method includes depreciation, so no separate depreciation claim is allowed.

Important caveats

• Once you choose the cost price OR tax book value FBT method, you must continue using it for at least 5 years for the vehicle.
• The opt-out election is irreversible for the life of the vehicle.
• The opt-out is only available if the company provides no other fringe benefits (no insurance, no low-interest loan, no other vehicle for other employees).
• GST adjustments may also be needed under the opt-out path to reflect the private use proportion.
• For shareholder-employee current account loans, separate FBT or interest charging applies — see our Shareholder Loan FBT Calculator.

Sources

• IRD - Fringe benefit tax for close companies
• Income Tax Act 2007 Section CX 17 - Benefits provided to shareholder-employees
• IRD - Kilometre rates 2024-2025
• OS 19/04 (KM 2025) - Kilometre rates for the 2025 income year
• Tax Policy commentary - Motor vehicle expenditure of close companies

This calculator provides an estimate only. Always verify your treatment with a tax adviser or refer to ird.govt.nz. The opt-out election is irreversible, so model multi-year scenarios carefully before deciding.

Related calculators

• NZ FBT Calculator — calculate FBT on motor vehicles, low-interest loans, and other benefits
• FBT Attribution Calculator — compare single rate vs alternate rate FBT methods
• Shareholder Loan FBT Calculator — FBT vs prescribed interest on overdrawn current accounts
• FBT Quarterly Return Estimator — build your quarterly IR420 return