Many Australian use their car for work purposes. There are a range of tax deductions that can legitimately be claimed however it’s HOW you make the claims that makes all the difference to your bottom line.
Tax deductions can significantly lower your overall taxable income, so it’s in your best interests to maximise all of the claims you can and claiming tax deductions on your car can yield some great results.
The way to claim tax deductions on your car depends on your business structure.
Pro Tax Tip: If your business structure changes, your entitlements and obligations may change.
Sole traders or partnerships (where at least one partners is an individual) must calculate their deductions based on their type of work vehicle. For cars, the cents per kilometre or logbook method should be used. For all other vehicles, the actual cost method must be used.
- Cents per kilometres method
- This method uses a set rate for each kilometre travelled and allows a maximum of 5,000 business kilometres per car per year from which tax deductions can be claimed.
- It doesn’t require written evidence to show exactly how many kilometres were travelled, but the ATO might ask you to show how you worked out your kilometres.
- A log book or diary is recommended. This method uses a flat rate that includes all vehicle running expenses (including registration, fuel, servicing and insurance)
- Depreciation is included as part of the rate and therefore can’t be claimed as a separate cost.
- The rate for the 2021-22 tax year is 72 cents per kilometre travelled
- The rate for the 2022-23 tax year is 78 cents per kilometre travelled
- Logbook method
- You must keep a logbook for a continuous period of 12 weeks to calculate your expenses using this method. Work out your business use percentage by dividing the distance travelled for business by the total distance travelled, then multiply by 100.
- The 12 week log book can be used for 5 years as long as the odometer reading of the car is recorded on 30 June each year to show the distance travelled each year.
- Add your car expenses for the income year
- Multiply your total car expenses by your business use percentage
- The records you need to keep (either printed or electronic) include a logbook, evidence of your actual fuel and oil costs, odometer readings and evidence of all other car expenses
- Actual cost method
- This method is used by companies, trusts, sole trader and partnerships for vehicles that are defined as a car under the ATO’s definition
- Vehicles that are not cars include motorcycles, scooters and similar vehicles as well as vehicles with:
- greater than one tonne carrying capacity such as some utes, trucks, heavy vehicles
- a carrying capacity for 9 or more passengers such as a minibus.
- Actual costs are based on receipts for the business use of your car
- You’ll need to work out the business use of your car from any private use
- After tax deductions are made using this method, depreciation can still be calculated for capital expenses such as the purchase price over a set period of time
- Some businesses might be eligible for an immediate deductions or an accelerated rate of depreciation under the temporary full expenses incentive.
A maximum value is applied on the cost of depreciation of passenger vehicles (except motorcycles or similar vehicles) and is in-line with the consumer price index.
|Financial year||Car limit||ATO reference|
|2022–23||$64,741||The indexation factor is 1.066, calculated as 413.8 divided by 388.1.|
|2021–22||$60,733||The indexation factor is 1.027, calculated as 388.1 divided by 377.9.|
|2020–21||$59,136||The indexation factor is 1.027, calculated as 377.9 divided by 368.1.|
|2019–20||$57,581||No indexation – the indexation factor is 0.987 calculated as 368.1 divided by 373.0.|
(Note: Annual Taxation Determinations for the car limit are no longer published.)
What to include in your logbook?
Certain information must be included to back up your claims. This information includes:
- when the logbook period begins and ends
- the car’s odometer readings at the start and end of the logbook period
- the total number of kilometres the car travelled during the logbook period
- the number of kilometres travelled for each journey. If you make two or more journeys in a row on the same day, you can record them as a single journey
- the odometer readings at the start and end of each subsequent income year your logbook is valid for
- the business-use percentage for the logbook period
- the make, model, engine capacity and registration number of the car.
For each journey, record the:
- reason for the journey (such as a description of the business reason or whether it was for private use)
- start and end date of the journey
- odometer readings at the start and end of the journey
- kilometres travelled.
Pro Tax Tip: Data in your logbook must be kept for a 12 week consecutive time period in one income year and will be used as a representative for the next five years. If your circumstances or usage changes, it’s a good idea to start a new logbook for each car. If you establish your business-use percentage using a logbook from an earlier year, you must keep that logbook and maintain odometer readings in the following years.
DOWNLOAD ITP ACCOUNTING PROFESSIONALS VEHICLE LOGBOOK
Pro Tax Tip: Expenses incurred in running a ute are not automatically tax deductible; you need to use the ute in your business and you can only claim the business portion.
Types of car expenses
Common types of motor vehicle expenses you can claim include:
- fuel and oil
- repairs and servicing
- interest on a motor vehicle loan
- lease payments
- depreciation (decline in value) of the vehicle. (You can’t claim depreciation if the vehicle is owned by your employee.)
Pro Tax Tip: Running expenses of a vehicle leased by your business can be claimed. If the vehicle is available for private use by an employee or their associate (such as a spouse), fringe benefits tax (FBT) may apply.
Records you need to keep
The records you need to keep will depend on the method used to calculate motor vehicle expenses. Regardless of the method you use, you will still need to keep the following for five years:
- loan or lease documents
- details on how you calculated your claim
- tax invoices
- registration papers.
Claiming tax deductions for your vehicle can be complex. This article only provides simplified advice and may not suit your specific circumstances. Expert tax advice is recommended which will take into account your objectives, financial situation and needs. Phone 1800 367 487 and chat with a friendly professional today or book an appointment using our online web form.