Do you use your car for work related duties?
You may be eligible to claim a deduction for car expenses in your tax return, if you are using your own car to perform your work duties (including a leased or hire car).
You are required to keep your receipts for actual costs incurred; including parking fees, tolls, finance interest, vehicle registration fees, insurance, fuel and gas, repairs including oil changes, tyres, and other routine maintenance, and depreciation.
It is imperative that only business or work related kilometres (kms) are claimed and that they are related to travel only between two places of work. You cannot claim travel from your home to your workplace as this would be deemed private usage under most circumstances (some exceptions apply such as for itinerant workers). To see the full list of when you can and can’t claim car expenses, visit the ATO website.
There are two options for taxpayers to claim motor vehicle deductions in their income tax return: the logbook method or the cents per kilometre (km) method.
The Two Methods
The first and most popular method for claiming work related motor vehicle travel is the cents per km method. This particular method requires no substantiation but only allows up to 5,000 business kms to be claimed per car per year. For the 2018-19 and 2019-20 financial years the rate per km that can be claimed as a deduction is $0.68. Hence the maximum deduction per car would be $3,400, if you had travelled 5,000 kms or more. Important to note: even though this method does not require substantiation; the Australian Tax Office still can ask you how you calculated the figure at their discretion.
The second method is the logbook method. In order to claim your work related motor vehicle expenses using the logbook method, the following conditions have to be met:
- You must keep a logbook and odometer readings for a ‘logbook period’ of no less than 12 continuous weeks;
- From this logbook you will be able to determine the percentage of kms that were business related and this will be the portion of costs that you will be able to claim for the year;
- You can claim fuel and oil costs based on actual receipts or estimates based on odometer records;
- You must keep written evidence of all other expenses for the car.
It will be beneficial to certain individuals who do a lot of travelling between workplaces for them to keep a logbook as you do not have the limit of the cents per km method ($3,400 per motor vehicle per year maximum claim).
A Real Estate Agent drives from one office to another frequently and over the year it adds up to $12,100 in total motor vehicle expenses (registration, fuel usage, insurance & other expenses including repairs and maintenance). Because he kept a logbook and determined that his travel was 65% business related; he can claim 65% of the $12,100 in his return or $7,865.
Had he not kept a logbook the maximum he could claim under the cents per km, method would be $3,400 (5,000 kms x $0.68).
It can be worthwhile keeping a logbook if you do a lot of business related motor vehicle travel however using the cents per km method and claiming up to the maximum 5,000 kms can be a lot easier as long as you can justify your claim. You cannot claim expenses when they have been reimbursed or salary sacrificed so if your employer pays for your motor vehicle and associated expenses, you cannot claim these as a deduction.