How to Claim Tax Deductions for Car Expenses in Your Tax Return

If you use your car for work-related travel in Australia, you can claim deductions for 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

Three Golden Rules

The taxpayer must follow these three golden rules to claim tax deductions for any work-related expenses:

• You must have spent the money yourself and not have been reimbursed
• Expenses must be directly related to your income-earning activities
• You must have records to prove it

When Can You Claim Tax Car Expenses?

• You carry bulky tools or equipment that your employer requires you to use for work
• You attend work-related conferences or meetings away from your normal workplace
• You deliver or collect any supplies for work
• You travel between two separate places of employment (You cannot claim when one of the workplaces is your home)
• You travel from your normal workplace to an alternative workplace (that isn’t your normal workplace) back to your normal workplace or directly home
• You travel from your normal workplace or your home to an alternative workplace that is not a regular workplace – for example, a client’s premises or a work site

When Can’t You Claim?

• Whether you’re claiming car expenses as a sole trader or a company with an ABN, you cannot claim the cost of travel between home to work and vice versa, as this travel is considered to be private
• You cannot claim the cost if the car is salary sacrificed or if the costs have been reimbursed
• For motorcycles and other vehicles other than cars, you cannot claim under tax car expenses. However, this can be claimed under travel expenses, with only the actual cost incurred allowed to be claimed. A logbook must be maintained to show the usage of the vehicle

Methods of Claiming Car Expenses

• Cents per KM Method: You are allowed to claim a fixed cost per KM of work-related travel. The current rate for car expense reimbursement per KM is 68 cents per kilometer. A maximum of 5000 km is allowed to be claimed.
• Records required:

• Logbook Method: Under this method, the claim is based on the business-use percentage generated from the logbook maintained for the car
• What can you claim under this method? Depreciation, fuel, car insurance, car maintenance and repairs, toll charges, and other actual costs for the car
• Records required:

1. a) Maintain a logbook: For claiming personal or company car petrol expenses, a logbook must be maintained for at least 12 continuous weeks for an income year that represents your travel throughout the year. Each logbook is valid for five years. If you have used two or more cars during the year, you must maintain a logbook for each car separately which must cover the same period.

1. b) Receipts and records required for claiming car expenses must be stored safely. A physical receipt or electronic copy will be

An alternative to manual record-keeping and a manual logbook is using ATO’s deductions app. You can download this free app from ATO in your app store or by following this link: ato.gov.au/mydeductions

Which Method Gives You Better Results?

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 kilometer 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 kilometers, you cannot claim any usage over 5,000 kilometers. 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 the actual cost of running your vehicle. If the operating cost of your vehicles including depreciation, interest on the 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 kilometer 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 12 weeks and can be used for another 5 years unless there is significant variation in work-related travel.

The Myth About the Cents Per Kilometre Method

There is a myth about the cents per kilometer 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 a diary record of the KM traveled throughout the year, must be kept if you are planning to use the cent per kilometer method to claim your tax car expenses. If your travel throughout the year is the same, diary evidence is still required to be maintained.

Frequently Asked Questions

How Do You Work Out Car Expenses for Tax?

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 kilometer method or the logbook method.

What Car Expenses Are Tax Deductible?

• Company car petrol expenses or diesel expenses
• Registration fees
• Car lease deductible as a business expense
• Car insurance
• Depreciation
• Car maintenance and repairs
• Toll charges
• Car wash expenses

Can I Deduct Car Expenses for Work?

If you’re using your car for work duties, you should be able to claim car expenses on your 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.

Find Out More Today

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 minimize your stress at tax time. Whether you’re located in Melbourne or elsewhere across Australia, call us today for trusted assistance.

Disclaimer:

All information provided in this article is general 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.