Vehicle expenses are a much regulated area for claiming deductions, so having an understanding of what you can claim is crucial in obtaining the correct deduction. Most of us rely on our cars daily in our working lives and, as we all know, cars can be expensive. Fortunately, tax deductions are claimable on your car-related expenses if you use your own car, or a car you hire or lease, for work purposes.
To be eligible to claim genuine car expenses, the first step is to work out and record how many of the kilometres travelled are business kilometres. After you have that checked off there are three main methods to choose from with the choice up to you with which one you choose. You may choose the one that gains you the largest deduction provided that you have backed up evidence if the Tax office requests it from you.
The three main options to determine car expense deductions are:
- cents per kilometre
- The logbook method.
Method 1: Cents per kilometre
The cents per kilometre method is the most common method used and can be used to claim up to a maximum of 5,000 business kilometres per year. The cents per kilometre method allows you to calculate deductions based on a cent-per-kilometre rate, which depends on your car’s engine capacity. Under this method you do not need written evidence but you may need to be able to show how you estimated your business kilometres. A typical example is where a trade’s person transports bulky tools and equipment to a work site. The rates that apply for the 2013-2014 period are shown below:
|Rates per business kilometre|
|Engine capacity||Cents per kilometre|
|Ordinary engine||Rotary engine|
|1.6 litre (1,600cc) or less||0.8 litre (800cc) or less||65 cents|
|1.601-2.6 litre (1,601-2,600cc)||0.801-1.3 litre (801-1,300cc)||76 cents|
|2.601 litre (2,601cc) and over||1.301 litre (1,301cc) and over||77 cents|
Method 2: 12% of original valuem- only avaiable for Tax Returns prior to 2015
The 12% of original value method takes that percentage of your car’s initial value as the claimable amount. An advantage of this method is you can use this method if you used your car to travel more than 5,000 business kilometres in the financial year. If you bought the car, you can claim 12% of the cost. If you leased the car, you can claim 12% of its market value at the time that you first leased it.
Cost of vehicle when purchase: $25000
Deduction to claim in tax return: $25000 x .12 = $3000
You do not need written evidence to use this method but you may need to be able to show how you worked out your business kilometres.
Method 3: The log book method
Using the logbook method, you work out the business or work related usage percentage of your car. This percentage is then applied to claiming all running costs of the car.
You can use this method if:
- you have a logbook that has been sustained for a minimum of 12 weeks;
- your logbook is updated every 5 years
- you have details of the kilometres you have travelled for the logbook period;
- you have recorded the odometer reading on 30 June (without this, the ATO will refuse your claim).
Keeping a logbook allows you to claim the maximum car deductions, as you can claim all car-related expenses if you have records to verify those expenses.
Records required include:
- a logbook
- odometer records, and
- Written evidence for all your car expenses except fuel and oil costs. For example: registration, repairs, insurance and interest)
A logbook is valid for five years providing it represents current usage patterns, must record at least 12 continuous weeks and 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 number of kilometres travelled for work activities based on journeys recorded in the logbook.
- the business use percentage for the logbook period.
- the total number of kilometres that the car travelled during the logbook period