If you use your car for work-related functions, you may be able to recoup some of your expenses come tax season.
You’re not alone; car-related costs account for almost 40% of all work-related deductions.
Car-related expenses are one area the Australian Taxation Office (ATO) will be cracking down on, with a fine of up to $4200 for people who file misleading or incorrect information.
Many people make mistakes when filing car-related costs, putting them in danger of being penalised despite the lack of malicious intent. On the other hand, many car owners are also driving around unaware of the tax discounts they could be getting.
Car Expenses You Can Claim
According to the ATO, you can claim your car-related expenditures for driving your vehicle to complete business tasks such as:
- Carrying heavy items or equipment that your company wants you to use for work (such as an extension ladder or a cello), and no secure storage is available at work.
- Attending work-related seminars or meetings away from your regular office, delivering or collecting goods
- Travelling between two different places of employment is valid but not if one of the locations is in your house (for example, when you have a second job)
- Travelling from your usual employment to a non-regular workplace, then returning to your regular workplace or directly home
- Travelling from your regular job or home to an alternate workplace that is not a typical workplace, such as a client’s premises
- Doing itinerant work.
You can also deduct taxes if you share your car or rent your car through a car-sharing service; this includes full program membership costs and expenditures such as registration, insurance, servicing, cleaning, depreciation, and gasoline.
Car Expenses You Can't Claim
Many of the excursions between home and work are private, so you cannot claim the expense of those trips, even if:
- On your way to work, you perform basic activities such as picking up the mail.
- You return to work for a security check or parent-teacher interviews.
- You work extra, and there is no public transportation available to get you home.
Two Ways You Can Claim Car-Related Expenses
The ATO recognises the following two systems for tracking work-related car expenditures.
Cents Per Kilometre Method
- In this method, a maximum of 5,000 business kilometres can be claimed.
- Currently, the cost per kilometre is 72 cents (as of 1 July 2020). The former pricing for the fiscal year 2020 was 68 cents per kilometre.
- All of your car expenses are taken into account.
- This method also covers depreciation of the vehicle’s cost.
- Car trips can be documented in a journal or calendar.
The Logbook Method
- Typically, claims that exceed 5,000 business km are subject to a surcharge.
- A logbook is used to keep track of all work-related trips.
- Each work trip must have a thorough description, including the start and end dates, amount of kilometres travelled, odometer readings, destinations, and reasons for the excursions.
- You must record your trips for a total of 12 consecutive weeks; this period is then regarded as indicative of your travel activity and will serve as the foundation for your following five years of claims.
- You will still need to take odometer readings at the start and end of each year during this period.
- The logbook must be kept for the duration of the five years (either digitally or physically)
- Your record entries are utilised to compute the total proportion of business-related travel across the period.
Please remember that these two methods of claiming tax deductions for car expenses do not apply to corporations or trusts. Car expenses can only be claimed for these sorts of organisations if receipts are provided.
Vehicle expenses include operating costs such as registration, insurance, repairs, and depreciation depending on the initial purchase price and length of ownership. Loan interest and leasing payments are also allowable deductions.
Keep all receipts since bank statements may not give all the required information and may not hold up to inspection.
There is no such thing as a standard tax deduction. Everyone’s situation is slightly different, so calculating your deductible car expenses is highly personalised. It’s best to consult with those who know what to claim. The last thing anyone wants is a letter from the ATO asking them to “please explain.”
If you’re looking for the best tax accountant on the Gold Coast, look no further than our experts here at New Wave Accounting. We provide end-to-end accounting and bookkeeping services that help scale and grow businesses. Contact us today and let us handle all your accounting needs.