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Tax claims for work-related car expenses

Posted by Rhodes Docherty on 29 July 2018

Another year another ATO crackdown!

It seems each year, the ATO chooses a theme to focus its attention on when it comes to work related expenses.

In years past, we've seen crackdowns on laundry, travel and self-education.

This time round, the focus could fall on car expenses.

Many small-medium businesses work on the principal that if the business incurred an expense, then it must qualify as being a deductible.

Our response to this is may be, may be not!

Let's first look at the ATO rules on work related expenses.

  1. The taxpayer must have incurred the expense themselves
  2. The expense must be incurred in gaining or producing assessable income
  3. The claim must comply with the substantiation rules

Why is the ATO focusing attention on car expenses?

The ATO is particularly concerned by a pattern where a significant proportion of claims were 'right at the limit that did not require detailed records'.

Under current law, deductions using the cents per kilometre method do not require written evidence if no more than 5,000 kilometres are claimed.

Car tax deduction methods

Previously, there were 4 methods to calculate and claim work related car expenses.

These were:

  • 12 percent of the original value
  • One third of actual expenses
  • A logbook for 12+ continuous weeks
  • Cents per kilometre

The ATO has since eliminated the first 2 methods.

Now there are only 2 methods to calculate car expense claims on your tax return:

  • The logbook method, or
  • The cents per kilometre method

So, which method is best for you?

Well, it depends very much on how you use your car for work and of course, how much you use it.

Here's a brief overview of each method.

Logbook method

  • Keep a logbook for 12 continuous weeks
  • You must own the car
  • You only need to complete the logbook process one time every five years (or less)
  • Record all business trips AND all personal trips in your car logbook
  • Keep receipts for all expenses related to your car, including:

o Petrol
o Registration
o Insurance
o Servicing
o Interest on loan costs
o Depreciation
o Other running costs

Cents per kilometre method

  • Claim up to 5000km per year using this method
  • No log book required
  • ATO can ask you to explain how you calculated your claim and how the use of your car was work related
  • You can claim 66c per work related km

Consult with your accountant as to which method is best for you and your business.

Also, remember:

  • You can't claim car expenses for travel between home and work or vice versa.
  • You can't claim car expenses on your tax return if you were reimbursed for the same costs by your employer. Only claim it if you paid for it yourself.

For more information or to schedule a no obligation consultation, get in touch with us today or call us on (02) 998 4033.

Author: Rhodes Docherty
Tags: Taxation
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