Tax time is when you sit down and work out what you can claim back on the tax you’ve forked out throughout the year. There are a lot of claims that can be made — especially if you use a work vehicle. Car-related claims are one of the most common tax return deductions, making up a huge chunk of claims.
This tax time the ATO are cracking down on vehicle-related tax deductions. As more Australians use their car to generate an income, it’s best to know exactly what can and can’t be claimed. Some of them just might surprise you.
When Can You Claim
The ATO is strict on what exactly qualifies as work-related use. You’ll be able to claim deductions for work-expenses if you carry bulky tools and equipment as a part of your job; travel from home to an alternate workplace such as a client or another office; travel for meetings, conferences or events or travel between two different workplaces.
When You Can’t Claim
Travel between home and work
The ATO considers travel between your home and regular workplace to be private in nature and can’t be claimed. Your regular workplace is the usual place for work where you start and finish your work duties. There are some circumstances where you can claim travel between your home and work, but the reasons are limited.
If your place of work is your home and you’re required to travel to another workplace, if you have shifting places of work and if you carry bulky tools and equipment you can claim the business portion of your car expenses.
Pro Tax Tip: Be careful of over claiming work travel between your home and a workplace. If you use your car to pick up the mail, then your expense is still private.
Most of us carry some sort of work equipment, but in most circumstances the travel still isn’t a claimable expense. You must satisfy certain qualifying rules. The equipment you carry must be essential to earning your income, you must have no option but to transport them, meaning there is no place to keep them at your normal workplace, as well as having size and weight requirements. There must also be no other way to transport this equipment to your workplace to make travel a valid tax deduction.
Claiming deductions on a company car
The fourth golden rule after the top three should be: do not ‘double dip’. You can’t claim expenses already covered by your employer, this includes salary sacrifice arrangements. You can however, claim actual work-related costs if you use someone else’s car or motor vehicle. You’ll just need to work out the actual costs and keep your records to prove your claim.
If you’re wondering what the top three rules are:
- The expense must be work-related
- You must be out of pocket and not reimbursed by your employer
- You must be able to substantially prove your claims
Cars vs Vans
Cars and vans are not equal — not in the eyes of the ATO. Cars are defined as motor vehicles that carry loads of less than one tonne and hold less than nine passengers. If you have a four-wheel drive, you’ll probably fall under this definition.
Other vehicles, such as motorcycles, scooters and other vehicles with a carrying capacity greater than one tonne (some utes, trucks and heavy vehicles) or with a carrying capacity of nine or more passengers, all fall into another category that is not defined as a car.
Many people forget to calculate the decline in value of their vehicle — which could add up to thousands of unclaimed dollars! The ATO considers a vehicle to have 8 years of life, with most depreciation claimed over the first four years.
Pro Tax Tip: Depreciation can only be claimed if using the logbook method for claiming car costs. If you use the cents per kilometre method, depreciation can’t be claimed separately.
How To Claim
There are two methods for claiming:
- The Cents per kilometre method
- The logbook method
Cents per Kilometre Method
Using this method, simply multiply your business kilometres by the allowable rate to work out your tax deductions. The rate for the 2020-21 income year is 72 cents per kilometre. This flat rate replaces depreciation of the vehicle, registration, insurance, maintenance, repairs and fuel cost. You’ll need to keep a logbook or travel diary or travel app as well as receipts to prove your claim.
Your claims are made based on the actual costs of your car expenses. These expenses include the running costs of your car and decline in value but not the capital costs. To claim using this method, you’ll need:
- A logbook
- The odometer readings for the start and end of the log book period
- The odometer reading for the beginning to the end of the income year you’re claiming in
- Details of business trips including the kms and reasons and locations for the trip
- Actual receipts for fuel costs
- Receipts, bank statements and tax invoices of all car costs
- Loan or lease documents
- Registration papers
- Details of how you calculated your claim
Your logbook must be kept for a 12 week consecutive period and then can be averaged out for the year. You must keep a fresh logbook every five years, however if your circumstances change, you’ll need to start a new one.
Pro Tax Tip: If you’re keeping a log book for two or more cars, you must keep them in the same time period.
Unless you know all of your tax deductions and how to make them, an accountant can not only make things a lot easier, they’ll work hard not make sure you haven’t forgotten any valid claims. ITP Accounting Professionals have helped Australian individuals and small business with their tax for fifty years. That’s a lot of experience. Phone 1800 367 487 or book online at www.itp.com.au today.