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Work-related vehicle expenses explained: cents per km vs. logbook

If you own a car, chances are you use it for work, but did you know that you’re entitled to claim a tax deduction for the costs of using your car to do your job? There are currently two methods you can use to claim car expenses: the ‘cents per kilometre method’, and the ‘logbook method’.

You may remember the ‘one-third of actual expenses’ method, and the ‘12% of original value’ method, but both were scrapped on July 1st 2015. It’s important to note that you can only use these methods if you’re lodging claims for 2014–15 and earlier income years.

You must own or hire the car

To be eligible to claim work-related vehicle expenses under either of these current methods, the car can’t be part of your salary package or owned by your employer. However, if you use someone else’s car you may still be able to claim direct costs, such as fuel, as a travel expense.

You can only claim a deduction for vehicle expenses if you use your own car, or a car that you’ve leased or hired yourself. To be considered a car for tax purposes, it must be:

  1. A motor vehicle, excluding motor cycles and similar vehicles
  2. Designed to carry a load less than one tonne
  3. Designed to carry fewer than nine passengers

If you use a vehicle that doesn’t fit this definition of a car, such as a motorbike or a minivan, you may still be able to claim direct costs, such as fuel, as a travel expense.

Common claim confusion…

There’s often a lot of misunderstanding at tax time when it comes to the cost of travel between home and work. Unfortunately, the ATO views these trips as private, so you won’t be able to claim them as a work-related vehicle cost.

You also can’t claim a deduction for any car expenses that have been salary sacrificed, or if you’ve received a reimbursement for the expenses.

Here are some examples of what the ATO considers work-related car use:

  • If your job requires the use of large tools or equipment, such as an extension ladder or a cello, and there is no secure storage available at work.  
  • Attending work-related conferences or meetings away from your normal workplace.
  • Delivering items or collecting supplies for work.
  • If you have a second job, you may need to drive between two separate places of employment (does not include working from home).
  • Travelling from your normal workplace to an alternative workplace and then back to your normal workplace or directly home
  • Travelling from work or home to an alternative workplace, such as a client’s home or workplace.
  • Travelling between your shifting places of work when you are an itinerant worker.

So – let’s compare the two methods for claiming your work-related vehicle expenses, so you can decide which one is the most tax-effective method for you and your circumstances.

The cents per kilometre method

If you travel 5,000 kilometres per year or less for work, then the cents per kilometre method might work well for you. With this method, your claim is based on a set rate for each business kilometre you travel.

Your claim will be calculated by multiplying your total kilometres travelled for work purposes (limited to 5,000 per vehicle) by the standard rate of 68 cents per kilometre. This is the standard rate since July 1st 2018, which is an increase from 66 cents per kilometre in the 2017–18 income year.

This method automatically takes all your vehicle running expenses (including depreciation) into account, so you won’t need written evidence of your expenses when claiming with this method. You just need to be able to demonstrate that you covered the number of kilometres you claimed, and a simple diary that records the distance of all your work-related trips will be sufficient evidence for the ATO.

If your car has another joint owner who also uses it for their own incoming-producing activities, then you can both claim up to 5,000 business kilometres each.

The car logbook method

If you use your car a lot for work, the car logbook method can potentially get you a bigger tax refund than the cents per kilometre method. The cents per kilometre method only allows you to claim a set rate for fuel, while the logbook method allows you to claim a percentage of all your car expenses, including fuel, registration, maintenance, interest on loans, the decline in your car’s value, and so on.

To work out the‘business use percentage’ of your car, you only have to record every trip (both private and work-related) for a 12-week period. This record of odometer readings will reveal the percentage of kilometres you travel in your car for work-related purposes, as well as the percentage you can claim on your tax return for all your car expenses paid throughout the year.

It’s important to remember that the ATO will consider your logbook invalid and reject all of your car expense claims if you don’t record every single private and work-related trip for the 12-week period. Fortunately, if your driving habits are consistent each year, you only need to do a logbook once every 5 years – even if you get a new car! So it’s definitely worth a bit of effort for 3 months.

Fuel and oil expenses can be claimed using your receipts as evidence, but you can also just use your odometer records to estimate your expenses. For all other expenses, the ATO requires written evidence.

Keep your records and documents safe!

It’s important to keep clear and accurate record of all business and work-related expenses, and those expenses involving your car are no different. When working out your claim, you can’t use approximate, guessed, or made-up cost. They must be legitimate, and you must provide evidence if you don’t want to worry about the ATO turning into a back-seat driver!

If you use your car for private travel as well as work travel, then you can only claim the work-related portion. Be sure to keep clear records of which trips are private and which are for work purposes!

Sticking to the rules and keeping clear records can help you and your accounting specialist maximise your tax refund – minus the headache! Fortunately, it’s now easier than ever to safely store receipts and other important documents with cloud-based software solutions.

TaxTank is coming soon and goes above and beyond just document storage. It’s designed to eliminate stress at the end of the financial year and make your tax easy to understand. Talk to specialist at ABA Tax or join today for free – you’ll never think about tax the same way again!

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