Whether you are a sole trader or employer, claiming motor vehicle expenses in your tax return is an area we find clients are often misinformed as to their requirements on acceptable record keeping. As we are seeing increased scrutiny by the ATO in this area the information below should be of interest to those clients that claim a percentage of their motor vehicle running costs using the logbook method. The other methods available to claim motor vehicle as a tax deduction is the cents per kilometer method which is not the subject of this newsletter.
Claiming motor vehicle expenses as a sole trader
If you operate your business as a sole trader you can claim a deduction for the business use of a motor vehicle your business owns, leases or hires under a hire purchase agreement.
You cannot claim a deduction for the private use of the vehicle.
Remember to keep receipts of your actual motor vehicle expenses. Actual expenses can include the cost of:
- fuel and oil
- repairs and servicing
- interest on a motor vehicle loan
- lease payments
- insurance
- registration
You cannot usually claim the cost of traveling between your home and your place of business. However, if your home is your place of business, you can generally claim the cost of trips you make between your home and other places, if you made the trip for business purposes.
Claiming motor vehicle expenses as an employee
You can claim a deduction for work-related car expenses if you use your own car in the course of performing your job as an employee, for example, to:
- carry bulky tools or equipment (such as an extension ladder or cello) which your employer requires you to use for work and cannot leave at work
- attend conferences or meetings
- deliver items or collect supplies
- travel between two separate places of employment, provided one of the places is not your home (for example, when you have a second job)
- travel from your normal workplace to an alternative workplace and back to your normal workplace or directly home
- travel from your home to an alternative workplace and then to your normal workplace or directly home (for example, if you travel to a client’s premises)
- perform itinerant work.
If you receive an allowance from your employer for car expenses, it is assessable income and the allowance must be included on your tax return. The amount of the allowance will usually be shown on your payment summary.
Also, in most cases, you cannot claim the cost of travel between home and work as this is deemed private travel.
Logbook method
Under this method your claim is based on the business-use percentage of the expenses for the car. The easiest way to calculate this percentage is via completion of pre-printed logbook (available from stationery suppliers) or make your own logbook.
To avail yourself of the logbook method you must keep a logbook during the income tax year for at least 12 continuous weeks. That 12 week period needs to be representative of your travel throughout the year.
If you started to use your car for business purposes less than 12 weeks before the end of the income year, you can continue to keep a logbook into the next year so it covers the required 12 weeks.
Each logbook you keep is valid for five years, but you may start a new logbook at any time.
If you establish your business-use percentage using a logbook from an earlier year, you must keep that logbook and maintain odometer readings in the following years.
If you want to use the logbook method for two or more cars, the logbook for each car must cover the same period. The 12-week period you choose should be representative of the business use of all cars.
Each logbook you keep must contain the following information:
- when the logbook period begins and ends
- the car’s odometer readings at the start and end of the logbook period
- the total number of kilometres the car travelled during the logbook period
- the business-use percentage for the logbook period
- the number of kilometres travelled for each journey recorded in the logbook (if you made two or more journeys in a row on the same day, you can record them as a single journey). You will also need to record the following:
-
- start and finishing dates of the journey
- odometer readings at the start and end of the journey
- kilometres travelled
- reason for the journey.
- the odometer readings at the start and end of each income year you use the logbook method.
This may be an opportunity to start the new year with the completion of a logbook or update an old one. The excuse that I lost it or can always reconstruct one if I get audited is fraught with danger.
