According to the ATO, car deductions are among the most commonly claimed tax deduction items.
Have you used your car for work this year, but forgot car expenses to keep a logbook? Don’t stress! You may still be able to claim work-related car deductions without a logbook on this year’s tax return.
Up until 2015 there were four ways to calculate and claim your work-related car expenses on your tax return. But with new rules in place, things have changed!
Here’s how to calculate car expense deductions and claim valuable car expenses on your next tax return. Ensure your refund doesn’t shrink as a result of the latest ATO car claim changes with our tips.
Car deduction method changes
Previously, there were four methods to calculate and claim your work-related car expense deductions:
- 12 percent of the original value
- One third of actual expenses
- A logbook for 12+ continuous weeks
- Cents per kilometre
Now it’s changed.
The ATO eliminated the 12 percent of original value method AND the 1/3 of actual expenses method from the tax return.
There are now only two methods to calculate car expense claims on your tax return:
- Cents per kilometre method, or
- Car Logbook method
Which car tax deduction method is best for me?
It all depends on why you use your car for work (and how much). Below is a brief overview of each method.
Cents per kilometre method
- Claim up to 5000km per year using this method
- No log book required
- ATO can ask you to explain how you calculated your claim and how the use of your car was work-related
- You can claim 66c per work-related km
Example: Julie is an administration officer for a small business. Each day she does 4 trips in her car to collect/drop off the post and do the banking. She drives approximately 14km per day in work-related travel.
Therefore Julie can claim:
- 14km X 5 days = 70km p/week
- 70km per week X 48 weeks (Julie has 4 weeks leave each year) = 3360km
- 3360km X $0.66 = $2217.60
This means at item D1 Julie can claim a car expenses deduction about of $2217.60
Car Logbook method
We’ve got a detailed article about the car logbook method so we’ll just cover the “car logbook basics” here:
- Keep a logbook for 12 continuous weeks
- You must own the car
- You only need to complete the logbook process one time every five years (or less)
- Record all business trips AND all personal trips in your car logbook
- Keep receipts for all expenses related to your car, including
- Petrol
- Registration
- Insurance
- Servicing
- Interest on loan costs
- Depreciation
- Other running costs
Once you complete your logbook, it is possible to calculate your business-use percentage. (That is the ratio, or percentage split, between between work and personal driving.) Then, you claim the business percentage of all expenses related to your car.
Example: Jeff is a sales manager and he kept a logbook for 12 weeks recording both work and personal trips. After that 12 weeks, Jeff added up the total kilometres travelled on work-related trips. Then he added up the total mileage. Next he divided work kms by total kms and that is his work-related percentage. For Jeff, it is 85%.
Jeff travelled 1000 km in total during the 12-week logbook period. He travelled 850 km on work-related trips.
- 850km divided by 1000km = 85%
Jeff adds up the receipts for all of his car expenses for the year, which total $8,350. Then he multiplies that by 85%, his work-related percentage.
- $8350 x 85% = $7097.50
Jeff can claim $7097.50 worth of car expenses at Item D1 on his tax return.
Important things to remember:
- You can’t claim car expenses on for travel between home and work or vice versa.
- You can’t claim car expenses on your tax return if you were reimbursed for the same costs by your employer. Only claim it if you paid for it yourself.
Claiming car expenses correctly on your tax return can put big $$$ back in your pocket at tax time so knowing which method is best for you is important.
If you’re not sure how these changes will affect you or which method is best for you, please don’t hesitate to get in touch on 1300 693 829 or [email protected]. If you prefer, leave us a comment over on Facebook with your thoughts about these car deduction changes.
