Work Related Car Expenses: Your Guide to Deductions

February 27, 2024

Simon Madziar
Simon Madziar

mahler-advisory

Work Related Car Expenses: Your Guide to Deductions

Key Highlights

  • You can claim tax deductions for work-related car expenses if you use your car for work purposes.
  • There are different methods to calculate and claim car expenses, including the cents per kilometre method and the logbook method.
  • Keep detailed records of your car expenses, including receipts and odometer readings, to support your claims.
  • Expenses for a vehicle that isn't yours
  • It is important to understand the eligibility criteria and limitations for claiming car expenses on your tax return.

Introduction

Using a car for work purposes often incurs expenses such as fuel, maintenance, and insurance. The good news is that you can claim tax deductions for these work-related car expenses, reducing your overall tax liability. However, it is important to understand the rules and regulations surrounding claiming car deductions to ensure that you are eligible and can maximise your deductions.

In this guide, we will explore the different types of work-related car expenses, the methods to calculate and claim these expenses, and the criteria for claiming car expenses on your tax return. Whether you own, lease, or hire a car, this guide will provide you with valuable information to help you navigate the process of claiming car deductions.

Understanding Work-Related Car Expenses

Work-related car expenses refer to the expenses incurred when using a motor vehicle for business purposes during the tax year. These expenses may include fuel costs, maintenance and repairs, insurance, registration fees, and depreciation. To claim these expenses, the vehicle must be used solely or partly for work purposes, and the expenses must be directly related to the income-generating activities of the business.

Definition of Work-Related Car Expenses

Work-related car expenses are the costs associated with using a motor vehicle for work purposes. This includes using the vehicle for business travel, transporting work-related equipment or goods, and driving between different work locations.

For tax purposes, work-related car expenses can be claimed as deductions on your income tax return. These expenses are deductible to the extent that they are incurred in the course of earning assessable income. In other words, you can claim the expenses that are directly related to your work activities and are necessary for the production of income.

It is important to note that not all car expenses are eligible for deductions. Personal or private use of the vehicle, such as commuting to and from work, is generally not deductible. Additionally, expenses for a car owned by someone else, including your employer or family member, are not claimable.

Definition of a car

To claim a work-related car expense, the vehicle must be a car.

  • A car is a motor vehicle that carries a load of less than 1 tonne and fewer than 9 passengers (including the driver). Motorcycles and similar vehicles are not cars.
  • If the vehicle does not meet this definition, you claim your work-related expenses using the approach for a vehicle that isn't a car

Tax Deductible Car Expenses

When it comes to tax deductible car expenses, it's crucial to distinguish between business and personal use. For instance, fuel costs, maintenance, and depreciation related to business purposes are tax deductible. On the other hand, expenses incurred for personal use are not eligible for deductions. Keeping detailed records, such as receipts and logbooks, is essential for accurately claiming these expenses.

Understanding the nuances of tax deductible car expenses can significantly impact one's income tax.

Examples of Tax Deductible Car Expenses

Examples of trips you can and can't claim a tax deductible car expenses include business-related travel, such as client visits, travel between different work locations, or trips to attend business meetings or conferences. Additionally, expenses for business errands, such as trips to the bank or post office, are also tax deductible. Fuel costs, parking fees, tolls, and even vehicle maintenance and repairs directly related to business use are typically eligible for tax deductions. These expenses must be supported by receipts or other relevant documentation.

Non-Deductible Car Expenses

Non-deductible car expenses refer to costs incurred for personal use, such as commuting between home and work. These expenses are not eligible for tax deductions. Additionally, fines and travel between home and a regular workplace are also considered non-deductible. It's essential to differentiate between deductible and non-deductible expenses to ensure compliance with tax regulations and to accurately claim business-related car expenses. Understanding the distinction helps in maximising legitimate deductions while avoiding potential issues with tax authorities.

ATO link: Trips you can and can't claim

Different Methods to Claim Vehicle Expenses

Claiming vehicle expenses presents various methods, each with its own requirements and benefits. The Cents Per Kilometre Method allows for a set rate per business kilometre. Meanwhile, the Logbook Method demands a detailed log of business use over a 12-week period, enabling accurate calculation of the business portion. On the other hand, the Actual Costs Method involves recording all expenses for the vehicle, only claiming the portion used for work purposes. Understanding these methods is crucial for maximising tax deductions. Although recording the details of your work journeys can be difficult and time consuming, this is an essential requirement for claiming car tax expenses.

The ATO myDeductions phone app has been developed to streamline the process of claiming your business vehicle tax deductions. However, you will still need to keep hard copy records of all your expenses.

The Cents Per Kilometre Method

The cents per kilometre method is used to calculate work-related car expenses without the need for detailed record-keeping. The ATO sets the maximum allowable kilometres each year, and any claims beyond this limit may attract scrutiny during tax assessment. For the 2023-2024 tax year, the maximum allowable claim is 5,000 business kilometres. This method is commonly chosen by taxpayers whose vehicle usage is for work purposes but do not have a structured logbook or records required for the logbook method. It offers a simplified approach for calculating car expense deductions while still providing significant tax benefits.

Eligibility for Claiming Cents Per Kilometres on Tax

To claim cents per kilometres on your tax, the Australian Taxation Office (ATO) requires the travel to be work-related. The travel should be between separate workplaces, visit clients, or transport work-related items. In addition, the travel must be strictly for work purposes, without any personal detours. The daily commute from home to a regular workplace is generally not considered eligible. Individuals should maintain records of the travel, such as receipts and logbook details, to support their claims. Adhering to these criteria is essential for successfully claiming kilometres on tax.

To claim these kilometres, you must have kept a valid record, such as a logbook or other evidence that demonstrates the work-related car use. It's important to comply with the ATO's requirements to ensure eligibility for claiming kilometres.

Cents Per Kilometre Rates

Tax Year Rate
2023 - 24 85 cents per km
2022 - 23 78 cents per km
2021 - 22 72 cents per km
2020 - 21 72 cents per km
2019 - 20 68 cents per km
2018 -19 68 cents per km

Example: Ava is a building certifier for a small business. In the 2023/24 tax year she does 1 trips per week in her car for inspections on building sites. She drives approximately 20km per visit in work related travel.

Therefore, Ava can claim:

  • 20km X 1 days = 20km p/week
  • 20km per week X 48 weeks (Ava has 4 weeks leave each year) = 960km
  • 960km X $0.85 = $816.00

This means at the car expenses section of her tax return, Ava can claim a car expenses deduction of $816.00.

NOTE: This method covers all car related expenses, including insurance, registration, annual repairs, maintenance, and fuel costs. So remember, you can’t add these expenses on top of the cents per kilometre total when working out your deduction.

The Logbook Method

The logbook method is a meticulous way of claiming work-related car expenses. It involves keeping a logbook for a continuous 12-week period to record all car trips, including the purpose and distance traveled for work. This method requires documenting all car expenses and calculating the business-use percentage. The logbook period must be representative of the car's business use throughout the financial year. This method provides a more accurate calculation of car expenses, ensuring that the claim reflects actual business usage and requires you to keep the following records:

  • Keep a logbook for 12 continuous weeks
  • You must own the car
  • A completed logbook is valid for 5 years as long as your pattern of use remains consistent
    • If you get a new job or your amount of driving changes, a new 12 week logbook is required
  • Record all business trips AND all personal trips in your car logbook
  • Keep receipts for all expenses related to your car, including:
    • Petrol
    • Registration
    • Insurance
    • Servicing
    • Interest on loan costs
    • Depreciation
    • Other running costs

Once you complete your logbook, you then calculate your business-use percentage. (That is the ratio, or percentage split, between work and personal driving.) Then, you claim the business percentage of all expenses related to your car.

Example: Ava is a sales manager and she kept a logbook for 12 weeks recording both work and personal trips which totalled 2560 km. Of this, Ava added up 1230 km travelled on work related trips. Finally, she divided her work kms by total kms and that is his work related percentage.

  • 1230km divided by 2560km = 48%

Ava adds up the receipts for all of her car expenses for the year, which total $10,380. Then she multiplies that by 48%, her work-related percentage.

  • $10,380 x 48% = $4,982.40

Ava can claim $4,982.40 worth of deductions at the car expenses section of her tax return.

Reimbursement of Car Expenses by Employers

Employers may reimburse car expenses for employees using their vehicles for work purposes. Reimbursements can cover fuel costs, maintenance, and depreciation. However, it's crucial to distinguish between business and private use. Reimbursements for personal travel may impact the employee's tax claims. Employers must ensure clear communication and documentation for reimbursed car expenses to avoid any misunderstandings or discrepancies in tax filings. Understanding the implications of these reimbursements is essential for both employers and employees.

Situations when Employers Reimburse Car Expenses

Employers generally reimburse car expenses for work-related travel purposes. This includes business meetings, client visits, or any other work-related travel. Employers may also reimburse for fuel costs or provide a company car for work purposes. Reimbursements for car expenses are often made to facilitate employee mobility and ensure that work-related travel is convenient and efficient. It's essential for both employers and employees to maintain accurate records of these expenses for tax and accounting purposes.

Impact on Personal Tax Claim

When it comes to the impact on personal tax claims, claiming work-related car expenses can have significant implications. Properly claiming these expenses can lead to a lower taxable income, potentially resulting in a larger tax refund. However, incorrectly claiming car expenses can lead to penalties and audits by the tax authorities, impacting the individual's financial well-being and reputation. It's crucial to maintain accurate records and seek advice from tax accountants or professionals to ensure compliance with the tax laws and regulations.

What if I use a motorbike or a van for work related travel?

If you use a motorbike or van for work-related travel, you can claim the deduction in your tax return as a work-related travel expense (not as a work-related car expense). You can't use the cents per kilometre method or the logbook method to work out your claim. It is essential to maintain detailed records that support your claims to ensure compliance with tax laws. Seeking professional advice can help you navigate specific circumstances and maximise your tax deductions. Remember to keep track of all receipts, invoices, and mileage logs related to your work-related travel expenses. This documentation will not only support your claims but also help you accurately calculate the amount you can deduct on your taxes.

Conclusion

In conclusion, understanding and claiming work-related car expenses can significantly impact your tax deductions. It is crucial to familiarise yourself with the different methods available for claiming vehicle expenses, such as the cents per kilometre method, logbook method, and actual costs method. Additionally, knowing the criteria for claiming kilometres on tax, including eligibility and limitations, is essential. Furthermore, being aware of tax-deductible car expenses and non-deductible car expenses can help you maximise your deductions while staying within the guidelines. Travel considerations for claiming car expenses, including eligible and non-eligible scenarios, should also be taken into account. Lastly, understanding the implications of employer reimbursement and its impact on personal tax claims is vital. If you have any further questions or need assistance with claiming car expenses, please don't hesitate to get in touch with our team of experts.

Frequently Asked Questions

Can you claim 5000 kms without receipts?

Unfortunately, claiming 5000 kilometres without receipts is not allowed. It is important to maintain detailed records and keep track of all receipts, invoices, and kilometre logs for your work-related travel expenses. This documentation will support your claims and help you accurately calculate the amount you can deduct on your taxes. It is always advisable to seek professional advice for specific circumstances regarding tax deductions.

How to Calculate Work-Related Car Expenses?

To calculate work-related car expenses, you can use the cents per kilometre, logbook, or actual costs method. Each method has specific criteria and record-keeping requirements. Consider your situation carefully to choose the right method for claiming vehicle expenses.

How to Keep Records for Car Expense Claims?

To keep records for car expense claims, maintain a logbook detailing business and personal use, including dates, distances, and reasons for travel. Keep all receipts for fuel, insurance, registration, and maintenance. Additionally, record any employer reimbursements for car expenses.

What if I Use My Car for Both Personal and Business Purposes?

If you use your car for both personal and business purposes, you can only claim the portion of expenses related to business use. This requires maintaining accurate records to support your claims, such as a logbook or odometer readings.

Can I Claim Expenses if I have been Reimbursed by My Employer?

If your employer reimburses you for work-related car expenses, you can't claim them on your tax return. However, if the reimbursement doesn't cover all expenses, you may be able to claim the difference. Ensure you keep accurate records to support your claim.

Looking for help with your accounting, bookkeeping or taxes? We can help! Click below to call or schedule a online appointment with us.

*Please note that the above information is general advice only. We recommend you seek advice from a specialist relevant to your personal situation. This information is correct at the time of publishing and is subject to change*

Tax laws and regulations can change over time, so it is important to stay informed about any updates or amendments that may affect your tax obligations. The Australian Taxation Office (ATO) is the authoritative source for the most up-to-date information regarding tax requirements and regulations in Australia.

Share

Schedule a Free Consultation Today!

Connect with us and take the first step towards effortless financial management. Reach out now to schedule a free consultation and let us tailor a package that resonates with your needs. Your journey to financial clarity and confidence starts here.

©️ 2024 | Sitemap | Powered by Xugar