When can you claim deductions for car expenses?

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We have already begun receiving information from the ATO regarding areas of focus for them going forward. One particular area of focus is work-related expenses, including car expenses.

Business owners should be aware that the ATO may request proof that you were required to undertake the travel for work. 

So, you need to make sure you're keeping accurate records in the form of a logbook (read more about logbooks here). You should also be aware of what you can and can't claim for car expenses.

When you can claim:

1. You can claim a deduction for work-related car expenses if you use your own car in the course of performing your job as an employee.

For example, to:

  • Carry bulky tools or equipment which your employer requires you to use for work, and cannot leave at work.
  • Attend conferences or meetings.
  • Deliveritems or collect supplies.
  • Travel between two separate places of employement, provided one of the places is not your home. 
  • Travel from your home to an alternative workplace and then to your normal workplace or directly home (e.g. travelling to a client's premises). 
  • Perform itinerant work.

If you receive an allowance from your employer for car expenses, it is assessable income and the allowance must be included on your tax return!

2. You can claim a deduction for using a car that you owned, leased or hired under a hire-purchase agreement.

However, you may not be considered to own or lease the car if you do not make financial contributions such as the initial purchase, lease, hire-purchase agreements (even if you pay expenses such as registration or running costs). 

If you have a private arrangement (e.g. amongst family) where you are effectively the owner of the car (even if you are not the registered owner) the ATO will treat the car as if you owned it and you can claim expenses. 

When you can't claim:

Most people can't claim the cost of travel between home and work, because this travel is considered private.

Calculating your deductions:

There are two methods available (from 1 July 2015)... 

1. Cents per kilometre method. 

  • The rate is determined by the Commissioner of Taxation each income year.
  • You can claim a maximum of 5,000 business kilometres per car.
  • You don't need written evidence, but you need to be able to show how you worked out your business kilometres (e.g. by showing diary records of work-related trips).

2. Logbook method.

  • Your claim is based on the business-use percentage of the expenses for the car.
  • To calculate your business-use percentage, you need a logbook and the odometer readings for the logbook period (minimum 12 weeks). 
  • Expenses include running costs and decline in value. 
  • Expenses do NOT include capital costs, such as the purchase price of the car and any improvement costs. 
  • You can claim fuel and oil costs based on actual receipts or an estimation based on odometer records.
  • You need written evidence for all other expenses for the car.

Click here to read more about calculating your deductions, or talk to a tax agent.

Read more on the ATO website