Aside from our home mortgages or rent, the cost of running our cars is the biggest personal expense we often have. This can be especially the case for families that need to run multiple cars.
You can claim car expenses for work-related travel if you answer ‘yes’ to any of the following questions:
a. Do you have to carry bulky goods or equipment used for work?
b. Are you a home-based worker, with no other base of employment?
c. Do you regularly work at different sites during the day?
Let’s run through some examples:
A tradesman (or any other worker, for that matter) who is required to transport bulky tools and/or materials to and between job sites would be entitled to claim car expenses, simply because there is no alternative for them to transport materials and tools.
If you operate a home-based business and work from home and then travel by car to other sites to perform work, you could claim the costs of running your car.
A bookkeeper that works at different clients’ sites during the day would be entitled to claim a deduction, as they would be treated as an itinerant worker who has a network of workplaces.
Other common examples are nurses who travel to make home visits; teachers who transport students (or just themselves) to different venues such as swimming carnivals, school excursions and camping trips; and business owners who travel between their business locations during the day.
Now that you’ve decided if you can claim car expenses or not, we’ll take a look at the methods you can use to claim car expenses to ensure you get the best possible deduction.
a. Cents per kilometre – based on a set number of kilometres in a tax year up to a maximum of 5,000km.
No documentary evidence is needed other than to show how you worked out the number of kilometres travelled. This method is best if you only do a few trips during the year and you can keep a diary of what those trips were for. The ATO issues three different per kilometre rates based on engine capacity.
b. 12 per cent of original value – your claim equals 12 per cent of the cost of your car.
Best used where you travel more than 5,000km per year but don’t want the strain of keeping documented records. You will still need to keep a record of how you decided you had travelled more than 5,000 work-related kilometres.
c. One third of actual expenses – used if you travel more than 5,000km per year.
You only claim one third of the costs of running a car. The cost of buying the car, including finance costs are specifically excluded in this scenario. Written records will be required to show your total expenses and car details.
d. Log book method – the most complex method that requires a log book of all work-related trips to be completed over a three-month period and retained for five years.
The percentage of work-related travel is then applied to all of your car expenses including depreciation on the value of the car, finance charges and all running costs. Receipts must be kept for all expenses as evidence.
Knowing just how much can be spent on owning and maintaining a car, the benefits of being able to legitimately claim at least some of those expenses can result in substantial income tax benefits.