You drive a vehicle for work, and you’re sure you can claim some tax deductions. The problem is you don’t know what car expenses are tax deductible. If it makes you feel any better, you’re certainly not alone. In fact, this is one of the main questions we receive at ITP. So grab a cup of coffee, settle in, and read on as our certified accountants clear this question up for you.
Over the years, the Australian Tax Office (ATO) has tightened up the rules around allowable claims. Car expenses are often included in their list of focus items, either specifically or – as was the case in 2023 – as part of the broader “work-related expenses” category. For this reason, it’s vital that you keep accurate records and only deduct what you’re legally entitled to claim.
What Car Expenses Can You Claim on Tax?
Vehicle expenses include running costs such as rego, insurance, repairs, and depreciation of your vehicle based on the original purchase price and how long you have owned the vehicle. Loan interest or lease payments can also be claimed.
Don’t forget to keep all of your receipts, as bank statements may not provide all of the necessary information and may not stand up to scrutiny.
How Do You Know If You Can Claim Your Car Expenses?
Here’s a schema you can use to determine whether you can claim a car-related expense on your tax return:
- Does your vehicle meet the ATO’s definition of a car? To meet the definition, it must be a motor vehicle that carries fewer than nine passengers (driver included). It must also carry a load of less than one tonne. Note that motorbikes, scooters, trucks, heavy vehicles, and some utes don’t count.
- Do you own or lease the car? Note that if you have a salary sacrifice or novated lease arrangement, this doesn’t count.
- Was your expense related to a work trip? Trips to and from work from your home generally don’t count (except in a handful of specific circumstances). However, a trip from one workplace to another or a trip to meet a client generally would.
- Did you spend the money yourself and receive no reimbursement?
- Do you have the required records? If you have to use your car for work, there are two ways you can claim your vehicle expenses – through keeping a log book or claiming cents per kilometre.
If you answered “yes” to all of these questions, then you should be able to claim that expense. Please note that you may still be able to claim expenses if your vehicle does not belong to you or does not meet the definition of a car. However, you’ll need to take some extra steps to ensure the expense is claimable. If you’d like assistance with this, contact ITP today and one of our friendly accountants will help you maximise your deductions and get the best refund possible.
Claiming Car Expenses: The Logbook Method
The biggest thing to remember if you choose to claim this way is that you can only claim your work-related vehicle expenses. Driving to a visit client? Claimable. Driving for a business meeting from your place of work? Claimable. Going to the movies for entertainment? Not claimable. The ATO will not be impressed if you try to lodge your tax return with personal car expenses included.
Pro tax tip: The commute to and from work is also considered private vehicle use in most circumstances. So there’s generally no claiming those kilometres.
In your logbook, you’ll need to note the following:
- The make and model of the car
- Rego number
- Dates and odometer readings of business travel only for a continuous 12-week period
- A description of the travel and locations. E.g. “Client visits to Glebe, Ashfield and Parramatta”
- An odometer reading taken on 30 June each year
Once you’ve kept an accurate logbook for 12 weeks, it will be valid for up to five income years. Then, all you need to do is record the odometer readings on the 30th of June each year. This allows the percentage of business travel calculated in the original 12-week period to be used for the next five years.
If you don’t record the odometer reading on 30 June each year, then you’ll have to start over with a new logbook.
In addition to your logbook, you’ll need to save receipts for fuel, oil costs, and other expenses. These are the records you’ll use to support your claims.
Claiming Car Expenses: The Cents per Kilometre Method
If you’d prefer to claim under this method, a flat rate is applied to the business kilometres you have travelled up to a maximum of 5,000 kilometres per year. The most recent rates are as follows:
- 2023–24: use 85 cents per kilometre
- 2022–23: use 78 cents per kilometre
- 2020–21 and 2021–22: use 72 cents per kilometre
Pro tax tip: Working on tax returns from earlier years? You can refer to the ATO’s prior year forms and schedules. However, we strongly recommend that you seek the help of a certified tax accountant if you’re behind on your taxes. You can contact ITP for assistance. If you’d first like to learn a little more about the repercussions of missing a tax filing deadline, please read our guide to late tax returns.
When claiming car expenses using the cents per kilometre method, you’ll still need to provide records and evidence to prove how you’ve worked out your business kilometres. For example, a diary record of your business kilometres travelled would be sufficient. If you’re the joint owner of a vehicle, you and the other owner can each claim up to a maximum of 5,000 business kilometres.
Warning: Don’t just claim the maximum 5,000 kilometres if you haven’t actually travelled at least that far for business purposes. The ATO often flags taxpayers who claim the full 5,000 for an audit. If this happens, they’ll expect you to provide additional records to back up your claim.
DOWNLOAD THIS ARTICLE: Taxes Made Easy: What Car Expenses Are Tax Deductible?
Getting Your Tax Deductions Right
There is no such thing as a standard tax deduction. Everyone is different, and working out your claimable vehicle expenses can get tricky. For this reason, it’s always a good idea to check with the people who handle taxes for a living. The last thing anyone wants is a ‘please explain’ letter from the ATO.Â
Registered tax agents are certified accountants who have engaged in further study aimed at mastering the complexities of tax law. They know precisely what you can claim and will help you make the most out of every tax return. The best bit? Not only will you get to claim things you weren’t even aware you could, but your accounting fees will be 100% tax deductible!
Booking with an ITP accountant is easy. Simply find your nearest ITP office, make an appointment, and you’ll be on your way to your easiest and most rewarding tax year yet!