What is the difference between cost price and tax book value for FBT?

Under the cost price method, FBT taxable value is 5% per quarter (20% per annum) of the GST-inclusive original cost price of the vehicle. The taxable value stays the same every year regardless of depreciation. Under the tax book value method, FBT taxable value is 9% per quarter (36% per annum) of the GST-inclusive depreciated tax book value at the start of the tax year. The TBV taxable value drops as the vehicle depreciates, but once the tax book value falls below $8,333, the method must use $8,333 as a minimum floor.

Can I switch between cost price and tax book value FBT methods?

No. Once you choose a valuation method for a vehicle, you must continue using it for at least 5 years. The 5-year minimum applies even if you realise the other method would have been cheaper. After 5 years you can switch (subject to certain conditions in section RD 28 of the Income Tax Act 2007), but most employers continue with the original method to avoid recalculating.

When does the tax book value method save FBT compared to cost price?

The tax book value method generally saves FBT for older vehicles where significant depreciation has occurred. In year one the cost method is almost always cheaper because 36% of cost is much higher than 20%. As the vehicle depreciates at 30% diminishing value (the IRD rate for passenger vehicles), the tax book value method becomes progressively cheaper. The crossover for a typical petrol car is around year 4 to 5, which makes the 5-year lock-in particularly important to model carefully.

What is the $8,333 minimum tax book value for FBT?

Once the tax book value of a vehicle falls below $8,333 (one third of the average passenger vehicle cost), FBT must still be calculated as if the tax book value was $8,333. This floor prevents fully depreciated vehicles from escaping FBT entirely. The floor effectively caps the FBT saving from the tax book value method at older ages: a $40,000 vehicle that has depreciated to $5,000 still pays FBT on $8,333 (giving $3,000 annual taxable value, $1,918 in FBT at the single rate).

Does the FBT calculation change when the vehicle is sold or replaced?

Yes. The 5-year lock-in applies to a specific vehicle. When you sell or replace the vehicle, the new vehicle is a fresh choice between cost and tax book value methods. This means employers can effectively re-optimise every time they replace a fleet vehicle, which is why the cost method (which front-loads the FBT but is simpler) is often preferred for vehicles held for less than 5 years.

FBT Cost vs Tax Book Value Calculator NZ

FBT Method Optimiser: Cost Price vs Tax Book Value

If your company has a motor vehicle subject to FBT, you face a one-time strategic choice: use the cost price method (5% per quarter on GST-inclusive cost, locked in for at least 5 years) or the tax book value method (9% per quarter on depreciated value, with a $8,333 minimum floor). The cost method is constant; the TBV method starts higher but drops as the vehicle depreciates at 30% per year. This calculator projects the FBT cost under each method over 5 years (the minimum lock-in period) so you can pick the one that minimises total FBT for the vehicle's expected life.

Updated April 2026 Uses the IRD-set 30% diminishing value depreciation rate for passenger motor vehicles and the $8,333 TBV floor.

Year	Cost method TV	Cost method FBT	Tax book value	Floor used?	TBV method TV	TBV method FBT	Annual saving
Total	—	$0	—	—	—	$0	$0

Why this choice matters

Section RD 28 of the Income Tax Act 2007 gives employers two options for valuing a motor vehicle for FBT purposes: the original GST-inclusive cost price, or the tax book value (depreciated value) at the start of each tax year. The two methods produce very different FBT bills, and the difference compounds over the 5-year minimum lock-in period. For a $40,000 petrol vehicle held for 5 years, the choice can cost or save several thousand dollars depending on which method is picked.

How each method calculates FBT

Cost price method (5% / 20%)

Quarterly taxable value = 5% × GST-inclusive cost price × days available / 90. Annual taxable value = 20% of cost price (assuming full 90 days each quarter). FBT = taxable value × FBT rate. The taxable value never changes regardless of how much the vehicle depreciates. A $40,000 vehicle has $8,000 of annual FBT taxable value forever, producing $5,114.40 of annual FBT at the 63.93% single rate.

Tax book value method (9% / 36%)

Quarterly taxable value = 9% × max(GST-inclusive tax book value, $8,333) × days available / 90. Annual taxable value = 36% of tax book value. The tax book value is the vehicle's depreciated value at the start of each tax year, calculated using IRD's 30% diminishing value or 21% straight line rate for passenger vehicles. A $40,000 vehicle starts with TV of $14,400 (much higher than cost method), but drops to $10,080 in year 2, $7,056 in year 3, and so on. Once the tax book value falls below $8,333, the floor kicks in.

The 5-year lock-in trap

Once you choose a method, you must continue using it for at least 5 years for the same vehicle. This means the choice should be made on the basis of expected 5-year cumulative FBT, not first-year FBT alone. Many employers default to the cost method because it is simpler and the year-one FBT is lower, only to find that the TBV method would have saved them money over the full 5-year ownership period as the vehicle depreciated.

The lock-in is per-vehicle. When you sell or replace the vehicle, the new vehicle gets a fresh choice. This is why fleet managers often use the cost method for vehicles they expect to replace within 3 years and the TBV method for vehicles intended for longer use.

Where the crossover occurs

For a typical $40,000 petrol vehicle depreciated at 30% DV with the FBT single rate of 63.93%:

Year 1: Cost method $5,114, TBV method $9,206 (Cost wins by $4,092)
Year 2: Cost $5,114, TBV $6,444 (Cost wins by $1,330)
Year 3: Cost $5,114, TBV $4,511 (TBV wins by $603)
Year 4: Cost $5,114, TBV $3,158 (TBV wins by $1,956)
Year 5: Cost $5,114, TBV $2,210 (TBV wins by $2,904)
5-year cumulative: Cost $25,572, TBV $25,529 (TBV wins by $43, basically a tie)
Year 6+: TBV continues winning, especially once the $8,333 floor kicks in

For vehicles held longer than 5 years, the TBV method generally wins by a comfortable margin. For vehicles replaced within 3-4 years, the cost method wins.

Strategic guidance

New vehicle held for 5+ years: The TBV method usually wins over the full ownership period, especially once depreciation pushes the tax book value toward the $8,333 floor.
New vehicle held for 3-4 years: The cost method usually wins because TBV's high early-year FBT outweighs later savings.
Used vehicle (already depreciated): Run the calculator with the vehicle's current age to set the starting tax book value. TBV often wins from day one if the vehicle is already 3+ years old.
Expensive luxury vehicle held long-term: TBV wins decisively because the absolute dollar savings as the vehicle depreciates are large.
Cheap second-hand workhorse: Cost method may win because the TBV is already near the $8,333 floor, removing TBV's main advantage.

Sources

This calculator provides an estimate only. Always verify your treatment with a tax adviser or refer to ird.govt.nz. The 5-year minimum is a strict statutory requirement; once chosen the method cannot be reversed during the lock-in period even if the other would have been cheaper.

Related calculators

NZ FBT Calculator — calculate FBT on individual benefits
Close Company Vehicle Calculator — FBT vs apportionment for shareholder vehicles
FBT Quarterly Return Estimator — build your IR420 return
Depreciation Calculator — straight line and diminishing value