As a small business owner in Australia, you rely on your car to drive to client meetings, transport equipment and supplies, and travel between sites. With all those business kilometers racked up, wear and tear is inevitable – which means you’ll likely face repair bills to keep your car operational. The good news? Many of these car repair and maintenance costs can be claimed as tax deductions – so, can you claim car repairs on tax deductions?
Understanding Tax Deductible Car Repairs
If your car is used for genuine business purposes, the Australian Tax Office (ATO) allows various car expenses to be claimed at tax time. This includes repairs, servicing, insurance, registration, fuel and more. However, to claim any car deductions, you need to have a valid logbook and be able to show how you calculated your claim.
The two main methods the ATO provides for claiming car repairs on tax deductions are:
Cents per Kilometer Method
The cents per kilometre method provides small business owners with a simplified way to claim vehicle expenses related to business travel. With this method, you can claim a set rate for each kilometre you drive your car for work purposes, up to a maximum of 5,000 kilometres claimed per vehicle per year.
You do not need to keep detailed records of your exact business kilometres. However, the Australian Taxation Office may request evidence such as a diary to show your method for determining your business travel. The rate is designed to cover all vehicle running costs including registration, fuel, servicing, insurance and depreciation.
The ATO reviews the cents per kilometre rates regularly to account for changing costs of vehicle ownership and operation. For the 2023-24 tax year, the rate is set at 85 cents per kilometre. In previous years it has been:
- 78 cents per kilometre for 2022-23 tax year
- 72 cents per kilometre for 2020-21 and 2021-22 tax years
- 68 cents per kilometre for 2018-19 and 2019-20 tax years
- 66 cents per kilometre for the 2017-18 tax year
Using the cents per kilometre method can simplify your small business tax reporting compared to keeping detailed vehicle logs. Just multiply your verified business kilometres by the applicable rate for the year and include the figure in your tax return.
The rates usually change every year on July 1, so it’s important to use the current year’s rates when calculating your claim. You can find the most up to date cents per kilometer rates on the ATO website or published in tax guides each financial year.
This involves keeping a detailed logbook for 12 continuous weeks to determine the overall business use percentage of your car. You can then claim this percentage of total car expenses. Ongoing records of the odometer reading as at 30 June each year are also required. This method is more complex but may work out better if your business usage exceeds 5,000kms.
The logbook method involves tracking all car travel for 12 continuous weeks to calculate an overall business use percentage. For 2024, you would need to complete a logbook between July 1, 2023, and June 30, 2024, unless you had kept a log book within the last 5 years and your business usage was still similar.
Your logbook should detail for every business trip:
- Date, start/end odometer readings
- Kilometers traveled
- Reason for trip
From this 12 week logbook, you calculate your business use percentage. For example (if you use your car 50% of the time for business purposes):
- Total business kms driven: 5,000kms
- Total overall kms driven: 10,000kms
- Business use percentage: 5,000/10,000 x 100 = 50%
You can then claim 50% of your total car expenses for the year including repairs, fuel, registration etc. according to ATO guidelines.
If business use exceeds 5,000kms per year, this method may work out better than the set cents per km rate. But you must have valid logbook evidence and ongoing records of business kms driven.
A tax accountant can assist in ensuring your logbook and calculation of business use percentage meets ATO requirements if you need help.
Types of Repairs You Can Claim
Pretty much any standard car repair relating to wear and tear or accidental damage can be included as a tax deduction. Some common examples include:
- Engine repairs
- Transmission/gearbox issues
- Brake repairs
- Battery replacement
- Tyre repairs and new tyres
- Scratches/paintwork fixes after accidents
It’s important to note that repairs covered by insurance cannot be claimed. Additionally, expenses related to car improvements or enhancing performance are generally not deductible.
Keeping Receipts for Car Repairs
To claim any kind of car expense – repairs included – you must have the necessary receipts or invoices to substantiate the claim. Every time a repair or service occurs, make sure to obtain documentation showing:
- Date and amount of expense
- Details of repairs completed
- Mechanic/garage information
- Ideally, keep digital and hard copies of receipts. Also mark receipts clearly as business or private expenses so you can easily categorize transactions later.
Using a Logbook
A logbook is important for claiming car expenses under either the cents per kilometre or logbook method. For 12 continuous weeks, record:
- When the car was driven
- Opening and closing odometer readings for each trip
- Total kilometers traveled per trip
- Reasons/nature of each trip
Tracking all travel for this initial 12 week period allows you to accurately determine a business use percentage for your car. In subsequent years, you simply need to keep ongoing records of the odometer reading as at 30 June each year for up to 5 years. After the 5th year and new log book is required with a new 12 week period covered.
Pro Tax Tip: The ATO has logbook templates you can use both for the initial 12 week period and ongoing business travel tracking. Digital log tracking options are also available via third party apps.
Claiming Car Repairs at Tax Time
With your validated logbook, business kilometre records and repair receipts, claiming deductions for car repairs and maintenance can be complex.
Start by validating your logbook covers the required 12 week period and has sufficient detail on business versus personal trips. Double check your business kilometre records are up to date. Then collate all repair and maintenance invoices, highlighting those that relate to business travel.
When completing your individual or company tax return, you’ll need to provide details of your claim, which may include:
- Total business kilometers for the year
- Calculation method used
- Receipts for total repair expenses being claimed
Remember, you can only claim the business-use percentage of each car expense according to your logbook. So, if your logbook showed 70% business use, and you spent $2,000 on car repairs that year, you could claim $1,400 (70% of $2,000).
Staying Compliant with Car Repair Claims
To avoid problems with the ATO and any tax audit risk, always:
- Keep accurate and valid logbooks each year
- Be able to show how you calculated your claim
- Only claim business-related car expenses
- Keep comprehensive receipts and records
With the right documentation, claiming car repairs and maintenance becomes easy. Just don’t forget to keep your logbook up to date. Accurately tracking business kilometres is essential to substantiate your claim while staying compliant.
So, can you claim car repairs on tax deductions? When tax time comes, finding and organizing all your repair receipts, logbooks and business kilometre records can feel daunting. If you have any other questions about claiming vehicle expenses as a small business, consult an accountant or tax agent for specific advice relating to your individual circumstances. With the right preparation, you can confidently claim eligible car repair bills and reduce your overall small business tax obligations.