As an accountant, I have often been bombarded during busy tax time with the question of “Car Expenses”. Obviously buying a car is a major event in someone life and if it attracts tax deductions then why not to claim a deduction?
The usage of personal car for work related activities is very common in many professions such as NDIS, nursing, health professionals, consultants, staff, networking professionals and others. So knowing clearly what you can claim for car expenses is important for compliant tax return.
What is work related car expenses?
Work related car expenses are expenses incurred for the purpose of performing work duties and include things like fuel, maintenance, insurance, and depreciation. These expenses may be tax deductible if they meet certain requirements set by the ATO. To claim a deduction, you generally need to have kept records of your expenses and be able to demonstrate a clear connection between the expenses and your work duties.
ATO defines cars as motor vehicles excluding motorcycles and similar vehicles that carry loads less than one tonne and less than 9 passengers. This also includes four-wheels drive.
Criteria to claim a work-related expenses for cars
- You must have spent money yourself and were not reimbursed.
- The activity must directly relate to earning your income.
- You must have a proof to validate the work-related usage.
Types of car usage:
You can claim a deduction for car expenses if you use the car for:
- Perform your work duties.
- Attend work-related conferences or meetings away from your normal workplace.
- Travel directly between two separate places of employment if neither of the places is your home.
- Travel from your normal workplace to an alternative workplace and back to your normal workplace.
- Travel from your home to an alternative workplace and then to your normal workplace.
How you can calculate the car expenses
There are two ways to calculate the car expenses:
Cents per kilometre method
You can claim a maximum of 5,000 work-related kilometres per car using this method.
You can claim 78 cents per kilometre for the 2022–23 financial year. The cents per kilometre rate incorporates decline in value, registration and insurance as well as maintenance, repairs and fuel costs. You can’t add these expenses on top of the rate when calculating your deduction.
Logbook method
The logbook method allows you to claim the work-related portion of your actual car expenses.
Expenses you can claim include running costs such as fuel, oil and servicing, registration, insurance and the decline in value.
To work out your work-related percentage, you need a valid logbook and the odometer readings for the start and end of the logbook period. Your logbook period needs to show a continuous, representative 12-week period.
Important:
You can not claim capital costs such as purchase price, the principal of a loan to buy it, interest or improvement cost.
Keep accounting records
It is also important you keep proper accounting record to validate the claim. For cents kilometre method, it is advisable you can print the google maps to and from destination and record the time and day as well.
For logbook method, it is recommended to keep all receipts in a file or if you are using cloud storage then you can scan the receipts and upload there with appropriate index name.
Need help?
Konvex Chartered Accountants will guide you step by step in relation to car expenses and available tax deductions. Please feel free to contact us at 07 3278 8818.
