Many people miss out on maximising work-related car expense claims due to inadequate record keeping. Failing to maintain a valid vehicle log book can cost you dearly if you are audited by the Australian Tax Office (ATO).
For the 2015/2016 financial year, the ATO introduced a change to the maximum amount you can claim using the ‘cents per kilometre’ method. It was reduced from $3,850 to $3,300 which is a substantial drop.
Advantages of a Log Book
Keeping a log book is now a more attractive method for many people. The logbook method is most advantageous if you travel a significant number of kilometres for work purposes during the financial year.
Using the logbook method, your tax deduction claim is based on your car’s business use percentage of expenses. These car expenses include fuel, repairs and depreciation.
A 12 Week Log Book Lasts for 5 Years
To be able to claim these expenses you need to keep a logbook for your car for a “typical” 12 week period. These must be 12 consecutive weeks (i.e. 12 weeks in a row), and must include every trip you take during that period, not just your business related trips. Remember driving to and from work is not included as work related.
Once you have kept the logbook, you can use your calculated percentage for 5 years, if your circumstances do not significantly change. You will need to keep receipts of all your motor vehicle expenses.
Comparing Logbook and Cents/km Methods
In this example, the logbook method gives an extra deduction of $2,100.
Logbook Method Example
After keeping a logbook for 12 weeks, Jill’s logbook shows she travelled a total of 11,000 kilometres with 6,600km being business related travel. Jill’s total car expenses, including depreciation, are $9,000 for the income year.
Jill calculated the percentage that the car was used for business:
6,600/11,000 × 100 = 60% To work out how much she could claim, Jill completed the following calculation:
$9,000 × 60% = $5,400 total claim
Compared to Cents Per Kilometre Method
5000km x 0.66 = $3,300 total claim
Clearly in this example, Jill would be better off keeping a logbook for the twelve weeks and using that method.
If you would like assistance with your car related expenses, please feel free to contact one of our accountants.