Deep Dive: Tax Deductions For Motor Vehicle Expenses
The most common question accountants get asked is “what can I claim as a tax deduction?” and one of the most common things people ask us to do is to “just claim the standard deduction.” The good news is that motor vehicles are one of the most commonly claimed larger value items, and the bad news is that there is no such thing as a standard deduction. In this blog post we are going to take a deep dive into when you can claim for car expenses and how to make sure you are making a valid claim.
When can car expenses be claimed?
The use of your car must have a direct link to your employment or business in order for a deduction to be claimed. Motor vehicle expenses must be reduced for any private use. It is important to note that generally trips to and from work can’t be included as work or business usage of your car. The exception is trips between home and work where:
You have to carry heavy and bulky tools as part of your employment duties which can’t be securely stored at work.
Your home is your base employment.
Your employment base shifts regularly, and you continuously travel between sites or offices.
Work related trips that are deductible can include:
Travel to attend client meetings;
Travel to attend work related seminars or conferences;
Travel between offices or sites;
Travel to pick up equipment or office supplies for the office.
Furthermore, any motor vehicle expenses which have been reimbursed by the employer must be excluded and can’t be claimed as a deduction and car expenses associated with a vehicle under novated lease or salary sacrifice are not deductible as you do not have ownership to the car under those arrangements.
How do I make a valid claim for motor vehicle expenses?
There are 2 ways in which you can claim car expenses:
Cents per kilometre method; and
Logbook method.
Cents per kilometre method
This method is the simplest way to claim car expenses and uses a fixed rate per kilometre that incorporates running costs of the motor vehicle. Maximum number of kilometres allowed to be claimed per year per car is 5,000 km. Under this method, you can claim kilometres for the shared car and each taxpayer is allowed to include up to 5,000kms in their tax return.
You must be able to provide records of how you calculated the total number of kilometres for any specific year. This could include a logbook or diary entries.
From 1 July 2022 , the rate for using the cents per kilometre method is 78 cents per kilometre.
This method is perfect for those who only use their car occasionally for work or those who hate keeping detailed records.
Logbook method
Under this method you can claim work-related percentage of the actual car expenses for the costs associated with running and maintaining your motor vehicle. Depreciation is also claimed.
Examples of the actual expenses are:
Fuel;
Insurances;
Registration;
Service;
Repairs;
Interest on loan (not the principal component of the repayment);
Car wash.
A logbook must be kept for 12 consecutive weeks with records of both private and work related travel in order to calculate work related usage for the completion of the tax return.
Logbook must contain the following information:
Car registration;
Period start and end dates for each trip;
Odometer start and end readings for each trip;
Description of each trip to determine if personal or work/business;
Total kilometres travelled.
A logbook is valid for the shorter period of 5 years, the period you own a particular vehicle (you need to keep a new logbook each time you change cars), or your work-related vehicle use percentage changes.
You must keep all of your receipts and invoices for vehicle related expenses. This includes fuel receipts, purchase contract and finance contract.
This method is perfect for people who use their car principally for work purposes and don’t mind the additional burden of keeping good records.
As with any tax deduction, record keeping is key. A tax deduction is not available to you unless you have the documentation to substantiate the expense.
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Disclaimer: This is general information only and is not advice of any sort. No warranty or representation is provided by Accounting Heart Pty Ltd as to the accuracy, currency or completeness of the information contained in this blog. Readers of this blog should not act or refrain from acting in reliance upon any information contained herein and must always obtain appropriate taxation and / or other advice as may be appropriate having regard to their particular circumstances.