If you use your personal car for work related travel in Australia, you can claim deductions towards such travel. Claiming car expenses means that you lower your taxable income, allowing you to get a higher tax refund or decrease your income tax liability. However, this does not happen automatically. You will need to maintain written evidence as detailed below, and this must be provided at tax time. Continue reading to learn more
The taxpayer must follow these three golden rules to claim tax deductions for any work-related expenses:
An alternative to manual record-keeping and a manual logbook is using ATO’s myDeductions app. You can download this free app from ATO in your app store or by following this link: ato.gov.au/mydeductions
We are often asked by our clients as to which method will give them a better outcome. Well, it depends upon your circumstances as well as a variety of other factors. Under the cent per kilometre method, the maximum amount you can claim is $3,400 (5,000KM X 68 cents). Even if your business travel in a year is more than 5,000 kilometres, you cannot claim any usage in excess of 5,000 kilometres. Under such circumstances, you may be better off using the logbook method.
Under the logbook method, two variables that determine your deductions are business usage % and actual cost of running your vehicle. If the operating cost of your vehicles including depreciation, interest on loan, insurance, registration fees, company car petrol expenses, car wash expenses, etc. is significantly higher and you have a higher business usage percentage, then you may get a much better outcome under this method compared to the cents per kilometre method. However, there are more record keeping requirements under this method. You should keep all receipts and invoices associated with the car throughout the year, and these will need to be kept for at least 5 years. The logbook can be maintained for the 12 weeks and can be used for another 5 years unless there is significant variation in the work-related travel.
There is a myth about the cents per kilometre method that there is no need to keep any record to claim up to 5,000 kilometers. However, there is no such thing as a standard or automatic deduction. Written evidence, such as diary record of the KM travelled throughout the year, must be kept if you are planning to use the cent per kilometre method to claim your tax car expenses. If your travel throughout the year is the same, diary evidence is still required to be maintained.
Australian tax car expenses can be worked out by calculating all car expenses relating to work purposes. This can be done using either the cents per kilometre method or the logbook method.
If you’re using your car for work duties, you should be able to claim car expenses on your personal tax return as long as you haven’t already been reimbursed. This is the case whether it’s a private car (where a portion of its usage is used for work and claimed accordingly) or a company car. You can also get a car rental expenses deduction for cars that are hired for work purposes.
Want to learn more about claiming car expenses? For more information on Australian tax car expenses and the available methods for claiming, contact Lotus Smart today. We can guide you through the process and help minimise your stress at tax time. Whether you’re located in Melbourne or elsewhere across Australia, call us today for trusted assistance.
All information provided on this article is of a general nature only and is not personal financial or investment advice. It does not take into account your particular objectives and circumstances. The information herein is based on the current tax laws. Tax law is subject to continual change, at times on a retroactive basis and may result in incremental taxes, interest or penalties.