Mileage allowance rates

I can see, with the current high petrol costs, that interest in the mileage allowance rate in the CAs has been rekindled.
 
So first, a brief history of the origins of the current rate:

It was imported into the Award from the Green Manuals in 1987 and modified at various stages which can be tracked by looking at the Awards, Contracts and  Agreements between 1987 and the current time.  The table format with kilometers run and engine size for cars existed from 1987 to 1993 when it was replaced by a simple two tier rate of 65 cents and 46 cents per kilometre, depending upon whether the kilometers run on official business were less than 1600 kms or more than 1600 kms.  In 1995 when there was a change to rates by 2%, these rates became 66cents and 47 cents.  The 1996 contract saw these reduce to 62 cents and 47 cents and the reduction of the top rate had nothing to do with a fall in the price of petrol but was related to the fact that the 66 cent rate breached the IRD reimbursement guideline.  Those rates have remained static ever since because there have been no changes to the IRD restrictions on the rate of reimbursement.

62c/km is still the rate published by the IRD that is tax exempt for the first 3000km in any year, dropping to 19c/km for every km over 3000kms.  The IRD will also allow employers to use running cost rates published by a reputable authority (such as the AA) as the flash point for deciding the level to which the first 3000km may be paid without PAYE deduction. Thereafter, the 19c/km kicks in meaning every cent reimbursed above that is to be treated as income in the hands of the worker and taxed accordingly. Thus teachers, who may be getting the 47c/km rate per the STCA because their annual mileage exceeds 1600km, are liable to be taxed on every cent above 19 they get once they exceed about 5000km.
 
Confused, then wait, there’s more.  The STCA and the IRD rates apply irrespective of engine size or whether the vehicle is petrol, diesel or battery powered. The AA publishes rates for different engine size bands, with different rates for petrol and diesel driven vehicles.  And, the IRD doesn’t really care what the actual running or fuel costs are.  All it cares about is the point at which every cent you get becomes taxable! It’s ‘concession’ regarding fuel prices is to allow employers to adopt the AA rates to be used to decide the level of reimbursement that is tax free for that first 3000kms; thereafter, the 19c/km rate  kicks in for tax free purposes. If all that is too complicated for hapless employers and workers, the IRD has a flat rate that can be used for any distance of 28c or will even allow individualised flat rates to be worked out; complicated exercises in themselves.
 
So, the current formula in the CA has a convenience about it as it largely avoids the tax issues. The employer is supposed to know when to start deducting and remitting the tax but if there is failure, the employee becomes liable including possible penalties.
 
Is this capable of being sorted? Probably not.  Business NZ had a go and that led to the concession about freedom to use the AA rates.  The PSA has had a go to be told the same.
 
Is the 62c/km a fair rate?  Who knows. It might be a fair average all purpose rate when all the complications and the latest AA rates are taken into account.  The 62c/km is a theoretical reimbursement of total vehicle running costs based on a bit of science.  Fuel costs were (and may still be) a smallish component of those total costs.  For example, say one moved to actual fuel costs for the distance travelled.  There would be variation because of different vehicle economy/driving conditions.  But let’s say consumption worked out at 8 litres/per 100km for the trip.  At $2.009/litre one could claim 16.07/km for that journey.  If the journey was more arduous and consumption was 10 l/100km, the claim would become 20.09/km.  Therefore, one would have to travel around 10,000 kms before reaching the tax free reimbursement of $1860 (0.62 x 3000). The current 62c/km rate was calculated at a time when fuel relative to other running costs was the highest it had been in 2 decades. They slumped soon afterward and have soared back to those relative heights in the last 6 – 8 months.