If a taxpayer owns or leases a motor vehicle that is used for work purposes, the Australian Taxation Office (ATO) allows the taxpayer to make a claim on their tax return under ‘Work Related Car Expenses’.
Determining work related car travel
Before a claim can be made, taxpayers must be able to calculate how much of the travel undertaken was work related. Private travel such as car trips between a taxpayer’s home and workplace CANNOT be claimed. However, Business travel such as travel from home where a taxpayer must transport equipment that they require for work and travel to an alternate workplace CAN be claimed.
Methods for calculating car claims
Based on the law that was established in the Tax and Superannuation Laws Amendment (2015 Measures No.5) Bill 2015, there will only be two ways for calculating work related car expenses as opposed to the original four methods in the 2015-16 financial year:
Cents Per Kilometre Method
Due to recent changes made by the government to the cents per kilometre method, different rates based on the engine capacity of a car are no longer available as of 1 July 2015. A single rate of 66 cents is to be multiplied by the total business kilometres – of up to 5000 kilometres for the 2015/16 financial year. However, if the business kilometres travelled exceeds 5000 kilometres in a year, the claim will be limited to 5000 kilometres for that car. A benefit of this method is that you do not need to obtain written evidence of kilometres travelled, however the ATO may ask how the business kilometres were calculated.
By using the logbook method, it means that the owner of the car will be able to claim the maximum amount of car expenses as deductions based on the motor vehicles’ ‘business use percentage’. To determine the business percentage, taxpayers will need to divide the total business kilometres travelled by the total kilometres travelled by the car during the period.
How do you keep a log book?
In order to successfully use the logbook method, a business owner will need to record each business journey for a twelve week minimum continuous period. The following information must be included in the logbook:
- The date of the period as well as the odometer readings from when the logbook began and finished
- The total amount of kilometres travelled during the period and;
- For each journey, the amount of kilometres travelled for income producing purposes in addition to a description as to why the journey was undertaken and the date and odometer readings of when it began and finished.
Furthermore, if taxpayers intend to use the logbook method for two or more cars, each car must have its own logbook and the logbook for every car must cover the same twelve week period.
All logbooks are valid for five years but taxpayers must record the opening and closing odometer readings for each year. Another essential requirement is that a taxpayer must obtain written evidence of all car expenses such as registration, insurance, servicing etc. for five years.
In conclusion, once the amount of business kilometres has been determined, the amount is to be included in ‘Item D1 – Work Related Car Expenses’ under the Deductions heading of the Income Tax Return.