Each year, the Tax Office reports that work-related expenses are the most common type of tax deduction claimed, and it also reports that one of the most popular of work-related claims is for vehicle expenses.
Vehicle expenses are a very regulated area for claiming deductions, so good guidance on making car expense claims is essential to stay on the right side of the taxman. It is not generally allowed, for example, to claim the cost of trips between home and work, even if you do minor work-related tasks on the way (such as for example picking up the mail from your employer’s post office box).
This is also the case where you may be called into work while otherwise at home (if you were “on call” for example), or if you worked shifts that are outside usual work hours. The fact that there happens to be no public transport near where you work also generally doesn’t make a difference.
The rules do allow a claim however if you need to drive in order to carry bulky items (like an extension ladder, for example) that can’t be left at the workplace, or you have multiple sites that you travel between as part of your employment.
Claims can also be made if your home is a “base” of work (and you travelled from there to another site, such as a client’s premises, to continue that work). You can also make a claim if you have a second job and travel directly from one workplace to another.
Car expenses are costs resulting from using your car for work (that is, to produce assessable income). But these deductions are only for “cars” and are not for other vehicles such as motorcycles, utes or vans (with a one-tonne capacity, or any vehicle with a nine or more passenger capacity).
Expenses for these vehicles are treated as “travel” expenses, as are costs for short-term car hire, bridge and road tolls, parking fees and such (but you must be eligible to make such claims — check with this office).
To claim legitimate car expenses, the first step is to work out (and record) how many of the kilometres travelled are business kilometres. After that, there are four methods to choose from, and you can take up whichever of these methods give you the largest deduction – provided you have the back-up evidence if the Tax Office asks for it.
The four options to determine car expense deductions are:
- cents per kilometre
- 12% of original value
- one-third of actual expenses, and
- the logbook method.
1. The cents per kilometre method
The cents per kilometre method can be used to claim up to a maximum of 5,000 business kilometres per year (but no more than 5,000). You do not need written evidence, but you may need to be able to show how you worked out your business kilometres.
The number of kilometres is multiplied by a cents per kilometre rate based on the engine size of the vehicle used. This ranges from 63 cents for a 1.6 litre or less engine to 75 cents for a 2.601 litre or more engine. Hybrid cars are still based on the petrol driven cylinder volume. The resulting figure is divided by 100 to arrive at the amount you can claim in dollars.
2. The 12% of original value method
The 12% of original value method takes that portion of your car’s original value as the claimable amount and you can travel more than 5,000 business kilometres in the claim period. If you bought the car, then 12% of the cost is used. If it is leased, a market value from the time you leased it is used.
But this method has a limitation applied for “luxury” cars, where a maximum cost is set and is indexed each year. It is $57,466 for the 2013-14 financial year.
3. The one third of actual expenses method
The one third of actual expenses method is just as it sounds (and does not take in purchase price or include capital costs such as improvements to the vehicle). But you will need to have receipts for fuel and oil costs, or use the odometer records to calculate a reasonable estimate.
All other car expenses need to be recorded, as will the make and model, engine capacity and registration number. You can travel more than 5,000 kilometres, but may need to show how you worked these business kilometres out. The limit of $57,466 also applies (which does not include GST by the way).
4. The logbook method
The logbook method requires that you record each car journey (in a logbook, naturally – you can get a blank one at most newsagents). The logbook needs to be kept for at least 12 weeks.
Your claim is worked out on the business use percentage for each trip (and again, not the purchase price or improvements). You will need to keep odometer readings and records of all other car expenses, and use the logbook to work out the percentages.
Input tax credit claims
If you are registered for GST you will need all the car-related invoices to claim back the right amount of input tax credits. You will again need to know the business kilometres to work out the percentage. Only expenses made for a “creditable purpose” are eligible for input tax credit claims.
One interesting, and perhaps unintended, benefit for employers is that where a car is supplied to an employee, and that employee uses the vehicle for part-private uses, the employer can still claim input tax credit entitlements at the full amounts, unaffected by this employee private use. This is because the Tax Office views the use of the car by the employer (giving the employee the benefit of using it) as still qualifying as a “creditable purpose”, and therefore entitling the employer to claim full input tax credits.
For the one third of actual expenses and the 12% of original value methods, you can make a claim of one third of the input tax credits included in the cost. With the logbook method, the percentage of business use determines the extent of input tax credit claim.
Since car expenses are the most claimed work-related expense, be sure to consult this office on what constitutes an allowable claim and which of the four claiming methods will work out best for your circumstances.