Part 1 Tax Deduction Series – Motor Vehicle Expenses

As mentioned in our blog post on the 15th May 2017, this week we begin our multi part series on Tax Deductions for individuals. In today’s issue, we focus on the biggest tax deduction generally available to individuals, motor vehicle expenses.

Firstly, it would be a fair assumption to say that most people own a motor vehicle, and that most people drive to work. But are you claiming all that you are entitled to when it comes time to preparing your income tax return at the end of the year?

When you can claim

You can claim a deduction for work related travel for motor vehicle expenses if you use your own car in performing your job as an employee, for example, to:

  • Carry bulky tools and or equipment
  • Attend conferences or meetings
  • Deliver items or collect supplies
  • Travel between to separate jobs – for example you have two jobs
  • Travel from your workplace to and from a client’s premises
  • Travel between separate workplaces – for example multiple work sites or multiple offices

When you can’t claim

You are generally you are unable to claim a tax deduction for normal travel to and from work as this is considered private travel however please confirm with either your accountant or our office on your specific circumstances.

Calculating your deductions

As of the 1st July 2015 there are two methods under which work related car expenses can be claimed in an income tax return, the cents per kilometre method and the logbook method. We will address each method below and the record keeping requirements to ensure you maximise your deduction come tax time.

Cents per kilometre method

Under the cents per kilometre method, you may be entitled to a deduction of $0.66 for every kilometre travelled for work related purposes. There is however a limit on the total number of kilometres you are entitled to claim as a deduction, being 5,000 kilometres per annum per motor vehicle.

This is the simpler of the two methods to claim a deduction for the work-related use of a motor vehicle, with the record keeping requirements being the ability to show how you worked out your business kilometres in the event the ATO conducts an audit. With the ATO becoming more stringent around claiming of deductions in personal income tax returns, there are some additional items we would suggest you have on hand before seeing your accountant at the end of the financial year:

  • Reasonable calculation of your work-related trips on a simple excel spreadsheet or diary entries in a diary that shows the purpose of your trip and the total kilometres travelled for work related purposes.
  • Letter from your employer(s) explaining briefly as to your requirement to use your vehicle for work related purposes; and
  • If transporting bulky tools and equipment a simple photo illustrating the size of the tools in question will also assist in the event of an ATO audit.

Our office can provide you templates for the above-mentioned diary entries and can liaise with your employer should you wish to discuss preparing a letter to assist in the preparation of your income tax return.

Logbook method

Under the log book method, your claim is based on the business-use percentage of the motor vehicle. As an example, let’s assume you use your motor vehicle 50% for business and 50% for private purposes, you will be entitled to claim 50% of the expenses associated with the motor vehicle as a tax deduction.

The expenses that you will be entitled to claim a tax deduction for under this method include:

  • Decline in value or depreciation on the motor vehicle
  • Interest on any finance taken to acquire the vehicle
  • Insurance and registration costs
  • Fuel and oil costs
  • Repairs and maintenance costs

This is the more complex of the two methods to claim a tax deduction for. Under this method, you are required to keep the following for substantiation and record keeping purposes:

  • Logbook for a minimum 12-week period that details all kilometres travelled within the period for both work and private use purposes and the purpose of each journey.
  • The opening and closing odometer readings for the beginning and end of the financial year.
  • Copies of receipts for expenses claimed except for fuel where a reasonable estimate can be made based on the opening and closing odometer readings. We would suggest retaining copies of receipts for the fuel as well.

In addition to the above, we would also suggest having the following on hand at year end before seeing your accountant at the end of the financial year.

  • Letter from your employer(s) explaining briefly as to your requirement to use your vehicle for work related purposes; and
  • If transporting bulky tools and equipment a simple photo illustrating the size of the tools in question will also assist in the event of an ATO audit.

If you would like an example of how to complete a log book or would like any additional information on the above, feel free to contact our office to discuss.

We hope the above has assisted you in some way in understanding what you may be entitled to claim when it comes time to preparing your income tax return. If you would like any further information on the above or wish to discuss with our office in more detail, please feel free to contact us.

In our next issue, we will address protective clothing and work related clothing expense deductions including some tips for specific industries which may be relevant!

ChalkBoard Consultancy Co.

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