The IRD mileage rate for the 2025-26 income year is $1.20 a kilometre for a petrol car, $1.30 for diesel, 90 cents for a petrol hybrid and $1.22 for an electric car. Those are the Tier 1 rates, which apply to the business share of the first 14,000 km a vehicle travels in the year. After 14,000 km a lower Tier 2 rate applies. Inland Revenue published the rates on 3 June 2026 in operational statement OS 19/04 (KM 2026). Inland Revenue calls them kilometre rates; most people search for "mileage rate".
Kilometre rates for 2025-26
| Vehicle | Tier 1 (first 14,000 km) | Tier 2 (over 14,000 km) |
|---|---|---|
| Petrol | $1.20 | 37 cents |
| Diesel | $1.30 | 38 cents |
| Petrol hybrid | 90 cents | 24 cents |
| Electric | $1.22 | 23 cents |
The 2025-26 income year ran from 1 April 2025 to 31 March 2026, so these are the rates for the tax return most people are filing now. Inland Revenue sets each year's rates after the year has ended, from data on what vehicles cost to run in that year, so the rates for 2026-27 won't be out until around the middle of 2027.
How that compares with last year
Every Tier 1 rate went up, and the electric rate rose the most, from $1.08 to $1.22.
| Vehicle | 2024-25 Tier 1 | 2025-26 Tier 1 | 2024-25 Tier 2 | 2025-26 Tier 2 |
|---|---|---|---|---|
| Petrol | $1.17 | $1.20 | 37 cents | 37 cents |
| Diesel | $1.26 | $1.30 | 35 cents | 38 cents |
| Petrol hybrid | 86 cents | 90 cents | 21 cents | 24 cents |
| Electric | $1.08 | $1.22 | 19 cents | 23 cents |
How Tier 1 and Tier 2 work
The two tiers exist because some costs are fixed and some depend on distance. Tier 1 covers both: depreciation, insurance, registration and the like, plus fuel or charging, tyres and servicing. Tier 2 is running costs only, because once a car has done 14,000 km in a year its fixed costs have been paid for.
The part people get wrong is the 14,000 km. It's total travel by the vehicle in the year, private trips included, not just your work trips. You apply Tier 1 to the business share of the first 14,000 km and Tier 2 to the business share of everything after that. So you need to know two things: how far the car went in total (opening and closing odometer readings) and what share of that was business.
Worked example: a sole trader
Our sums, using Inland Revenue's rates. Say you're self-employed, drive a petrol car 20,000 km in the year, and your logbook shows 40% business use.
- Tier 1: 40% of the first 14,000 km is 5,600 km. 5,600 × $1.20 is $6,720.
- Tier 2: the car went 6,000 km past 14,000. 40% of that is 2,400 km. 2,400 × 37 cents is $888.
Deduction: $7,608 for the year. That figure includes depreciation, so you don't claim depreciation on the car separately. Inland Revenue also says self-employed people using the kilometre rates don't need to think about GST on them.
The same driver in an EV would claim 5,600 × $1.22 plus 2,400 × 23 cents, which is $6,832 plus $552, so $7,384.
Worked example: an employer reimbursing staff
If an employee uses their own car for work, the employer can pay them back, and the part worked out at the kilometre rates is tax-free. That's operational statement OS 19/04b. It covers cars, vans and utes, but not motorcycles or scooters.
- With a logbook or other records showing work use, the employer can use Tier 1 for the work share of the first 14,000 km the car travels and Tier 2 after that, exactly as above.
- With no records, Tier 1 is limited to the first 3,500 km of work travel. Anything over 3,500 work km goes at Tier 2. The 3,500 is 25% of 14,000.
Example, again our sums: an employee drives a hybrid 5,000 km for work and keeps no logbook. 3,500 × 90 cents is $3,150, plus 1,500 × 24 cents is $360. $3,510 can be paid tax-free.
Two things the statement is careful to say. Inland Revenue isn't telling employers what to pay; that's for the employer and employee to agree. And an employer can pay more than the kilometre rates if it can show the higher amount is a reasonable estimate of the employee's real costs. Because the rates are set a year behind, Inland Revenue said in July 2026 that it is considering more guidance on reimbursements because fuel prices have moved, expected for the 2027 income year. Until then, employers can keep using the 2025-26 rates or another method that gives a reasonable estimate.
Logbook or no logbook
To claim more than 25% business use, you need a logbook. Inland Revenue's rules:
- Keep it for at least 90 consecutive days. Record the start date and odometer reading, then each business trip's date, distance and purpose, then the end date and odometer reading.
- The business-use percentage it gives you can be used for up to 3 years, as long as your business use doesn't change by more than 20%. Then you do another 90 days.
- With no logbook, your claim is limited to 25% of the vehicle's running costs, and you may still be asked to back that up.
Driving from home to your usual workplace is private travel, not business travel, even if you're self-employed.
Kilometre rates or actual costs
Instead of the rates, you can claim the business share of what you actually spend (fuel, insurance, repairs, rego, finance interest) plus depreciation. That takes more record-keeping, but it can come out higher for an expensive car or a high-mileage diesel. Whichever you choose, Inland Revenue says you have to keep using that method for as long as you own the vehicle. The kilometre rates only cover petrol, diesel, hybrid and electric vehicles; anything else uses actual costs.
If the vehicle belongs to a company and staff use it privately, that's a different regime, fringe benefit tax, and the kilometre rates aren't how it's worked out. For the tax on the business's profit, see the company tax rate; if you're deciding whether to register for GST, see do I need to register for GST.
Other vehicle costs worth knowing
The kilometre rate already allows for registration, WoFs and road user charges, so they aren't claimed on top. If you're budgeting what a work vehicle really costs, see how much rego is, what a WoF costs and road user charges, which diesel and electric vehicles pay. And if you bill clients for travel, the invoice generator puts a mileage line on a proper GST invoice.
Common questions
What is the IRD mileage rate for 2026?
For the 2025-26 income year (1 April 2025 to 31 March 2026), the Tier 1 rate is $1.20 a km for petrol, $1.30 diesel, 90 cents petrol hybrid and $1.22 electric. Tier 2, for the business share of travel over 14,000 km, is 37, 38, 24 and 23 cents.
When are the 2026-27 kilometre rates out?
After the 2026-27 year ends on 31 March 2027. Inland Revenue says the rates are usually published by May; the 2025-26 rates came out on 3 June 2026. Employers paying reimbursements in the meantime can keep using the 2025-26 rates.
Does the 14,000 km include private driving?
Yes. It's the total distance the vehicle travels in the income year. Tier 1 applies to the business share of the first 14,000 km, Tier 2 to the business share of the rest.
Is a mileage allowance taxable?
Not the part that's a reasonable estimate of the employee's costs. Using the kilometre rates is an accepted way to work that out. An amount above that, with nothing to show it's reasonable, is taxed like pay.
Can I use the kilometre rates for a motorbike?
No. Inland Revenue's statement on employee reimbursement says the rates don't apply to motorcycles or scooters, petrol or electric, and other vehicle types claim actual costs.
Sources: Inland Revenue, Kilometre rates 2025-2026 (updated 8 July 2026), OS 19/04 (KM 2026) (published 3 June 2026), OS 19/04 (KM 2025) (30 May 2025), OS 19/04b, employee reimbursement, 2025-2026 kilometre rate guidance (8 July 2026), Vehicle expenses and Use a logbook. Worked examples are our own arithmetic. Checked October 2026.
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