Recently, the Australian Taxation Office has announced that work-related car expenses will be scrutinised as it is one of the most claimed type of deductions. According to the ATO car deductions alone cost the ATO more than $8 billion in 2016/17 tax year – and some of the 3 million taxpayers have been found to inadvertently overclaim. Working out a correct claim is tricky and now coupled with this announcement from the ATO, it is vital that taxpayers are doing the right thing.
Prerequisite and methods
Car expense deductions (Item D1) can only be claimed by taxpayers who used their own car for work-related purposes for the tax year. There are 2 methods of claiming this deduction:
- Cents per kilometre
- Logbook method
Which method is best?
Cents per kilometre
This method allows you to claim 5000 km per year with no logbooks required. A simple explanation as to how you came up with the number of kilometres used for business purposes is all the ATO needs. For 2018/19 tax year, the ATO set 68c per business-related kilometre.
For example: Leo is an administration officer for a small business and part of his job is to drive around the city to perform his biweekly tasks. Usually, he leaves his main workplace to do banking and drop/collect mail (20 km distance per day). Therefore, Leo can claim:
- 20km x 2 times a week x 48 weeks (assuming she takes 4 weeks leave a year) = 1920 km
- 1920 km x $0.68 = $1,305.60
A logbook of all trips (personal and business) for 12 continuous weeks is what is required to use this method. This logbook needs only to be completed once every 5 years. In addition, receipts for expenses such as petrol, registration, insurance, servicing, depreciation and interest on loans should be kept as this is included when claiming the percentage of business use of the car.
For example: Chris maintained a logbook for all her trips this year and recorded a total of 1500 km in trips for 12 weeks. She worked out that 1275 km was business related. So, 1275 km divided by 1500 km = 85% business use percentage.
She then adds up ALL her car expenses for the year, which total $6,500. Multiplying that with her work-related percentage ($6,500 x 85%) use would allow Chris to claim $5,525 for work-related car expenses.
Things to think about
Car deductions can only be claimed for travel to/from different workplaces as specified by the employer. Trips to/from home and work are not considered business-use and therefore not claimable (except for when you are required to bring home heavy tools). In addition, car expenses that were reimbursed by your employer cannot be claimed by you. The deduction only applies when you paid for the expenses yourself.
Working out which method works for you could maximise your tax refund. If you’re not sure how to determine this yourself, please do not hesitate to get in touch with our office.