With the ongoing changes to legislation and increased complexities to business it is no wonder we often see business owners confused and unable to keep up and understand the ‘Tax Rules’ their accountant is telling them or what they are hearing in the media.
To help iron out some confusion we are going to run a series of weekly tips to educate you on the hot topics we are often being asked about by businesses.
Tax Tip # 1 – Claiming Motor Vehicle Expenses
Company and Trust’s
If you operate your business as a company or trust, you can claim a full deduction for expenses you incur in running a motor vehicle that your company or trust leases or owns. If you, or other company or trust employees (or their associates), use the vehicle for private purposes, you may have to pay fringe benefits tax (FBT). FBT will be covered in one of our up and coming ‘Tax Tips’.
Sole Traders and Partnerships with at least one Individual
If you operate your business as a sole trader or a partnership that includes at least one individual, you can claim a full deduction for a business-purpose vehicle – a truck or van, or a smaller vehicle, such as a ute, wagon or panel van that has been heavily modified for business use, or where private use is restricted to home-to-work travel and very minor other use.
For all other types of vehicles used to operate your business as a sole trader or a partnership that includes at least one individual, there are four methods you can use to work out the amount you can claim, as follows:
Method 1 – cents per kilometre
You can use this method to claim up to a maximum of 5,000 business related kilometres per vehicle even if you have travelled more than 5,000 business related kilometres. You do not need written evidence but you may need to be able to show how you worked out your business related kilometres.
Method 2 – 12% of original value
If you use this method you can claim 12% of the original value of your car (subject to the car limit*) – that is, if you:
- bought the car, you can claim 12% of the cost
- leased the car, you can claim 12% of its market value from the first time it was leased
Your car must have travelled more than 5,000 business kilometres during the income year
You do not need written evidence to show how many kilometres you have travelled, but the Tax Office may ask you to show how you worked out your business kilometres.
Method 3 – One-third of actual expenses
This method allows you to claim one-third of each car expense. Car expenses do not include capital costs, such as the initial cost of your car or improvements to your car.
Your car must have (or would have if you had it for the whole financial year) travelled more than 5,000 business kilometres during the financial year.
You need written evidence for all car expenses except for fuel and oil costs.
There are two ways to work out fuel and oil costs. Use your fuel and oil receipts if you have them or keep odometer records and make a reasonable estimate based on those records.
Odometer records need to show the odometer reading of the car at the start and end of the period that you owned or leased the car. They should also show the car’s engine capacity, make, model and registration number.
You may also need to show how you worked out your business kilometres and any reasonable estimate you made.
Method 4 – logbook
If you use this method, you:
Can claim the business use percentage of each car expense, based on your logbook records
Must keep a logbook so you can work out the percentage
Must have written evidence of your fuel and oil costs or odometer records on which your estimates are based
Must have written evidence for all your other expenses.