Vehicle FBT is being rewritten: what changes from April 2027

If your business provides a vehicle to a staff member, or to you as a shareholder-employee, the way FBT is worked out on it is set to change.

A tax bill introduced on 10 September 2026 proposes replacing the current approach to FBT on motor vehicles. It is not law yet. It still has to get through Parliament and the detail can shift along the way. If it passes as drafted, the new rules apply from 1 April 2027, which is closer than it sounds once you are making fleet decisions.

Six categories instead of counting days

Day counting and logbooks largely disappear. In their place are six categories, and you pick the one matching how the vehicle is genuinely used. Each carries a fixed inclusion rate.

• Category 1, full private use: 100%. Unrestricted private use, or private use with only limited restrictions. Branding is irrelevant here. A branded vehicle with unfettered private use still lands in category 1.
• Category 2, partial private use: 35%. Private use limited to rostered days off, public holidays and statutory leave, plus the commute. Mainly business use. Branding required, with an exception for farming and agriculture businesses that are not widely held. Inland Revenue expects a significant number of vehicles to sit here.
• Category 3, farm vehicles with limited private use: 35%. Mainly used for business on farmland in a farming or agricultural business. Branding not required. This one does not extend to lifestyle blocks or small farming blocks.
• Category 4, minor private use: 20%. Home to work travel to a single workplace, and nothing else. Branding required.
• Category 5, minor private use: 0%. Home to work travel where the work itself requires the travel, across multiple sites or on a project of limited duration. The genuine tool of trade van. Branding required.
• Category 6, no private use: 0%. Exclusive business use beyond the incidental. Pool vehicles not assigned to any one employee. Branding not required.

Once a vehicle is in a category, it stays there unless its use materially changes. Inland Revenue calls it set and forget. No more counting the days a vehicle sat in the yard.

Category 1 is the default

If a vehicle does not clearly fall within categories 2 to 6, it defaults to category 1 at 100%, and the onus sits with you to show which category applies.

So the businesses who come out of this well will be the ones who can say, for each vehicle, who drives it, where it goes and what private use is actually permitted.

The work-related vehicle exemption goes

The bill repeals the work-related vehicle exemption, along with the emergency call exemption and the business travel exemption.

Inland Revenue's reasoning names a misunderstanding we come across often. Owners assume a vehicle meeting the physical requirements of a work-related vehicle is simply exempt from FBT. It never was. The exemption only applied to days when no private use was permitted, other than home to work travel, and plenty of businesses have been claiming it on days they were not entitled to.

The categories capture that use directly, so the exemption is no longer needed.

Branding, and a date to note

Branding becomes a formal requirement for categories 2, 4 and 5.

There is a transitional rule for anyone buying vehicles right now. Vehicles purchased before the bill was introduced on 10 September 2026 would not need to meet the new branding requirements. Vehicles purchased after that date will, in order to fit within a category.

If you are adding to the fleet this summer, decide on branding at the point of purchase, because it is part of qualifying for anything below the 100% rate.

New rates, with a lower one for EVs

The bill also introduces separate valuation rates by fuel type, calculated on cost. On an annual basis:

• Petrol or diesel: 20% of cost
• Hybrid, including plug-in: 19.6% of cost
• Electric: 17% of cost

On a quarterly basis those become 5%, 4.9% and 4.25%. The hybrid and electric rates are based on vehicle running cost data, and the bill would require the Commissioner to review all the rates every four years.

Other changes in the bill

The weight exclusion that keeps heavy vehicles out of the FBT regime lifts from 3,500kg to 6,000kg, reflecting how much heavier vehicles have become, EVs in particular.

The on-premises exemption stays as it is.

There is a new exemption for emergency vehicles operated by ambulance services, Police, Fire and Emergency, the Defence Force, civil defence, and volunteer organisations with a government service level agreement.

Shareholder-employees with minimal private use would still be able to use a logbook.

What to do now

Nothing is urgent. The bill is still going through Parliament and the detail may change before it lands. Two things are worth doing ahead of time.

The first is writing down, for each vehicle, what private use is permitted and how it is used week to week in practice. The categories turn on that, and it is the difference between 35% and 100%.

The second applies if you are buying. A vehicle bought from here needs to meet the new branding rules to sit in category 2, 4 or 5.

We are following the bill through and will let you know if the detail changes. If you would like to talk through where your own vehicles would sit, we are happy to work through it with you.

This article is based on the Taxation (Annual Rates for 2026–27, FBT Simplification, Foreign Investment Funds, and Remedial Measures) Bill as introduced on 10 September 2026, and on Inland Revenue's commentary on that bill. It is general information, not advice for your situation, and the proposals may change before they become law.