Company car or car allowance: which is worth more in a job offer?

How each is taxed

The two are taxed in opposite ways:

• A company car is a fringe benefit. Your employer pays fringe benefit tax (FBT) on it, and under the Income Tax Act a fringe benefit is not your income. You pay nothing on it.
• A car allowance is cash. It is taxed through PAYE with the rest of your pay, and KiwiSaver comes off it too, except for any part that is a reasonable estimate of your work-related travel costs. An allowance that pays for owning the car and commuting is taxed.

At 2026/27 rates, for most salaries in the 33% band, each extra dollar of pay keeps about 61.75 cents after PAYE, ACC at 1.75% and KiwiSaver at 3.5%, or 64.75 cents in the 30% band. So an $8,000 allowance keeps about $4,940 in the 33% band, or $5,180 in the 30% band. The KiwiSaver part still goes to your own savings.

You also cannot claim your car's costs against the allowance. Employees cannot deduct expenses of earning their salary, so the full tax falls on the allowance whatever you spend on the car.

Private use and FBT

FBT is due for every day the car is available for your private use, even on days you do not use it, and Inland Revenue counts driving between home and work as private use. That tax is your employer's cost, but it is one reason some employers prefer to pay an allowance instead.

Some work vehicles are exempt. A ute or van mainly designed to carry goods, weighing 3,500 kg or less, with permanent signwriting and a written rule from your employer that the only private use is necessary travel between home and work, can be exempt from FBT. If you are offered one, expect exactly that restriction: it gets you to and from work, and not to the beach at the weekend.

So ask what private use means in your offer. Can you use it at weekends and on holiday? Can your partner drive it? Who pays for fuel, and is there a fuel card? Who pays the insurance excess and any fines? The answers can change the car's value to you by thousands of dollars a year. Ask too whether you are expected to contribute to the car from your pay, which reduces what it is worth.

Running your own car on an allowance

With an allowance, you own the car and all its costs: buying it, insurance, registration, servicing, tyres, fuel and the value it loses each year. Inland Revenue's kilometre rates give a rough guide. For 2025-2026, its Tier 1 rate for a petrol car, which includes the fixed costs of owning it, is $1.20 a kilometre. At 10,000 kilometres a year, that is about $12,000.

On those figures, an $8,000 allowance leaving $4,940 after tax covers well under half of running a car. To pay $12,000 of car costs out of salary, you would need about $19,433 of extra salary in the 33% band. That is the scale of what a company car with full private use can be worth.

The allowance has advantages, though. You choose the car, you keep it, and you can drive it anywhere, with anyone, with no questions asked. If you already own a car you are happy with and drive little, an allowance may suit you better than a car with conditions attached.

What happens when you leave

A company car goes back on your last day, or sooner if your employment agreement says so, and you will need a car of your own at short notice. An allowance simply stops, but you still have your car.

Check the agreement for the details: whether the car can be withdrawn if your role changes, whether it is part of a total remuneration package that shrinks your salary, and whether you can buy the car when you leave. A car that can be taken away in a restructure is worth less than the same car guaranteed in your agreement.

Adding the right number to the package comparison

To compare two offers fairly, put the right value on each. For a company car, use what it would cost you to run a similar car yourself, limited by how much private use the offer allows. For an allowance, use the after-tax amount.

The Offer Comparer compares two offers after tax, with no account needed. Enter a company car in the box for an employer-paid vehicle or parking, which is counted untaxed. Enter a car allowance in the box for a bonus or cash allowance, where it is taxed like pay. Our article on salary against the total package covers how to value the other parts.

Value the car in the whole offer