A guide to motor vehicle deductions
Everyone is looking to get the most out their tax return. One of the biggest ongoing expenses most people need to deal with is their car. So, getting some of the money we lose back into our own pockets is paramount. The trouble is that the ATO has been trying very hard to crack down on any Motor Vehicle deductions. They have continued to change the rules, altering them to be more specific about what can and cannot be claimed. This means that deductions that you could previously receive are now no longer valid. Understanding what you can and cannot claim plus what methods you need to use to get that claim is important to maximising your return come tax return time.
What can you claim?
As before, all claims must be for deductions on work-related expenses. However, the ATO is very specific about which exact work-related expenses can be claimed. If you use your car to perform your job, then you can claim deductions on most of these car related expenses. This includes:
Carrying bulky tools or equipment that your employer requires you to use for work and you can’t leave at work.
Attending conferences or meetings
Delivering items or collecting supplies
Travelling between two separate places of employment, but not if one of those places is your home. (for example you could be travelling to a second job)
Traveling to and from from your normal workplace to an alternative workplace that is not a regular workplace.
Travelling from your normal workplace or your home to an alternative workplace that is not a regular workplace.
Perform itinerant work.
If your job requires you to travel from your workplace to clients regularly then you will be able to receive a deduction for that travel. From this list it becomes obvious what the ATO intends these deductions to be used for. The ATO intends for this deduction to help those who travel as a part of their job. So, if you fit this intention then you should be eligible for a deduction on your motor vehicle.
What can’t you claim?
Understanding what you cannot claim before attempting to file your tax return is equally as important in knowing what you can claim. There are some small caveats that the ATO throws out in order to keep hold of their intended use for motor vehicle deductions. These include:
You cannot claim the drive between work and your home. The ATO considers this private use.
If you complete small tasks for your employer between home and work, you cannot claim these either. For example, picking up mail or grabbing some coffee.
You cannot claim any deductions on travelling back to work for security calls or any special events.
If you work overtime and have to drive home because of a lack of public transport you cannot claim deductions on this travel. It is also considered as private travel by the ATO.
Any type of travel that you choose to take by car that is not required to complete for your job cannot be deducted.
What deduction methods can you use?
There are two main methods that the ATO require you to use when claiming tax deductions for motor vehicles. Each has its own positives and negatives. Which method to use in order to provide the highest deduction will depend on your personal situation. Here is a run down of each method.
Cents per kilometre
This claim is based on a set rate for each kilometre you travel for your business. Under this method you can claim up to 5000 kilometres for each vehicle per year. With this claim you would multiply the total number of business kilometres travelled by the standard rate of 68 cents. All vehicle running expenses and depreciation is covered under this standard rate. This method is really simple to calculate and does not require written evidence. You may, however, need to be able to prove that you have covered all of the claimed kilometres. The best way to do this would be a diary of all work-related journeys made by each vehicle.
The logbook method is more complicated than the costs per kilometre method, however, does not have limitations on kilometres travelled per vehicle. Over a minimum of a 12 week period you must keep a log of all kilometres travelled by the vehicle, whether this be for business or private travel. You then need to work out what percentage of that travel was for work. Simply divide the total amount of business travel over the total amount of kilometres travelled by the vehicle and multiply it by 100. This will give you a percentage. Then to work out your deduction you must multiply the total expenses for the vehicle for that income year by the previously found percentage. This will provide you with the amount you can claim in your deduction.
With this method you must keep a log of all trips made. In this log you must have the following:
The date the logbook period begins and finishes plus the cars odometer readings at the start and end.
The total number of kilometres the car travelled during this period.
The percentage of those kilometres that are business travel.
The number of kilometres travelled for each journey. In this include the odometer readings at the start and finish and the start and finish dates of the journey.
The logbook must be taken over at least 12 weeks that representative of your typical use for the vehicle. Compared with the cents per kilometre method, the log book tends to be more time consuming. Fortunately a single logbook is valid for up to 5 years but you need to continue recording odometer readings at the start and end of each financial year.
Which method is best?
Each method offers different advantages depending on the amount of travelling you use your vehicle for. The simple way to determine what method to use is whether you use your vehicle for more than 5000 business kilometres or not. If you do, then to get the most out of your deductions you will need to use the logbook method. If you do not then use the cents per kilometre method. For example, If you infrequently use your car for occasional meetings or conferences then you will want to use the cents per kilometre method. If instead you frequently visit clients for work travelling far, or very frequently, racking up well over 5000 kilometres then use the logbook method. It is a simple line but can be difficult at first to figure out.
When attempting to get the most out of your tax deductions it is important to understand what you can and cannot claim, and which method best suits your business. A good habit for your business to get into is to keep a diary of all travels made by the vehicle, even if you a re following the cents per kilometre method. This will allow you to review all travel made by the vehicle at the start of each ne financial year so you can determine whether you need to change methods. Have you ever had any trouble with claiming vehicle deductions?
If you need anymore help on vehicle deductions contact Link Advisors today!