- May 1, 2024
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- Posted by: user
Whether you’re a business owner, freelancer, or an employee who uses a car for work purposes, understanding how to properly claim car tax deductions can significantly enhance your tax refund. In Australia, the Australian Taxation Office (ATO) allows individuals and businesses to claim expenses related to the business use of a vehicle, but knowing the right way to claim and what you’re entitled to can be the difference between a good and a great tax return.
Understanding Eligibility
First and foremost, remember that if you are audited you MUST BE ABLE TO BACK UP ANY CLAIMS YOU MAKE!
To claim car expenses, the use of your car must be related to earning your income. Commuting between home and work isn’t typically deductible, unless you’re transporting bulky tools or equipment that can’t be stored securely at your workplace, or if your home is your base of operations.
Here are a new examples of legitimate reasons to claim.
- Trips made with the purpose of gathering or dispatching products or parts
- Journeys between numerous locations during the course of your working day that are required for the purposes of work. Like visiting clients, picking up tools or the like.
- Travel to attend business meetings or receiving training or off-site interviews
Methods for Claiming Car Expenses
The ATO provides two main methods for individuals and businesses to claim car expenses. Choosing the right method can help maximise your deduction:
- Cents per Kilometre Method:
- Limit of 5,000 business kilometres per car, per year.
- Claim 85 cents per kilometre for the 2023-24 income year (the rate is different for previous financial years).
- No need to maintain detailed records but you need to be able to show how you calculated your business kilometres.
- Logbook Method:
- Maintain a logbook for 12 continuous weeks.
- Record all odometer readings, and note the purpose of each journey.
- After 12 weeks, the logbook is valid for five years, provided the pattern of car use doesn’t change significantly.
- You can claim the business-use percentage of each car expense, which is determined from the logbook.
You can read more about this on the ATO website HERE.
What Expenses Can You Claim?
Using either method, various car expenses can be claimed provided they relate to the operation of the vehicle for business purposes, including:
- Fuel and oil
- Repairs and servicing
- Interest on a motor vehicle loan
- Lease payments
- Insurance
- Registration
- Depreciation (if you own the car)
Work-related car expenses calculator
The ATO has a handy online calculator that you can access HERE.
Tips for Maximising Your Deduction
- Keep Accurate Records:
- No matter which method you choose, keeping accurate, detailed records is crucial. Receipts, logbooks, and a diary of car use are indispensable when it comes to claiming deductions.
- Use a Dedicated Business Car:
- If it’s feasible, using a dedicated car for business purposes simplifies the process of claiming deductions. The more a vehicle is used for business, the higher the potential deduction.
- Review Your Method Annually:
- Your car usage pattern may change over time. Annually reviewing which method offers the highest deduction based on the current year’s usage can help in maximising your returns.
- Consider Professional Help:
- Tax rules can be complex. A tax professional can provide advice tailored to your specific circumstances, potentially increasing your tax benefits.
Special Considerations for Businesses
For businesses, especially those with multiple vehicles, maintaining a fleet logbook can be advantageous. Businesses also need to consider how GST on car expenses is claimed back through their Business Activity Statement (BAS), and how fringe benefits tax (FBT) may apply if employees are allowed private use of a company vehicle.
Again, seek professional help with this as it can be quite complex.
What Can’t You Claim?
Private travel can’t be claimed. That’s why keeping records is so important. You need to keep track and be able to prove what and what is not, work travel and deductible.
Going home for lunch, going to work from home, travelling to work outside of standard work hours. If you pick up something from Officeworks on the way to work – that is not deductible. Because you were on the way to work anyway. You also can’t claim any trips where your employer has reimbursed you.
One that trips up a lot of people is travelling from a your own business venture or part time work and then going to your regular work.
But there are some situations where you might be able to claim. For example: if you have to bring back tools from work because they can’t be stored at work. Some part of your work has to be done at home and then continued at work. You are returning home from a remote work site that isn’t your principle place of employment. Consult with your tax professional.
Conclusion
Car tax deductions can be a significant boon for both individuals and businesses, but they require meticulous record-keeping and strategic decision-making. By understanding and utilising the methods approved by the ATO, you can ensure you’re not only compliant but also maximising your tax refund. Each year, take the time to reassess your method and expenses to keep your claims optimal, leveraging professional advice as needed to navigate the complexities of tax law effectively.