Blogs
Guide to Making Motor Vehicle Expense Claims - 12th February 2019
A
perennial topic regarding tax deductions is claiming expenses for a car. The
following notes summarise the most salient points when it comes to claiming a
deduction for motor vehicle expenses. Of course every person's circumstances
may be different, but the following covers most of the relevant information.
Key points to keep in mind include:
- the way a claim is calculated depends on your business structure
- if business changes structure, your entitlements and obligations may also change
- you must apportion expenses between business and private use
- records need to be kept for five years.
The common types of motor vehicle expenses you can claim include:
- fuel and oil
- repairs and servicing
- interest on a motor vehicle loan
- lease payments
- insurance
- registration
- depreciation (decline in value) of the vehicle.
Types of motor vehicles
The
type of motor vehicle you drive can affect how you calculate your claim. A
motor vehicle is either a car or an "other vehicle".
Car: A car is a motor vehicle that is designed to carry:
- a load of less than one tonne, and
- fewer than nine passengers.
Most
four-wheel drives and some utes are classed as cars.
Other vehicle: If your motor vehicle is not a car it's an "other vehicle". According to the ATO, other vehicles include:
- motorcycles
- minivans capable of carrying nine or more passengers
- utes or panel vans designed to carry loads of one tonne or more.
Note
that expenses incurred in running a ute are not automatically tax deductible;
you need to use the ute in your business and claim the business portion only.
Business structure
Your
business structure can affect your entitlements and obligations when claiming
deductions for motor vehicle expenses.
Sole traders and partnerships
If you operate your business as a sole trader or partnership (where at least one partner is an individual), the way to calculate your deduction depends on the type of vehicle and how it is used. The vehicle can be owned, leased, or hired under a hire purchase agreement.You
can only claim motor vehicle expenses that are part of the everyday running of
your business (such as travelling to and from different business premises).
If
the vehicle is used for both private and business purposes, it is expected that
you will exclude any private use (such as driving your children to school).
Cars
For cars, you can use the cents per kilometre method or the
logbook method.
Cents per kilometre method:
You can claim a maximum of 5,000 business kilometres per
car. The rate per kilometre (66 cents in 2017-18 and 68 cents in 2018-19) takes
into account your car running expenses, including depreciation. You can't make
a separate claim for depreciation of the car's value.
You
don't need written evidence, but you must be able to show how you worked out
your business kilometres (for example, calendar or diary records).
For
claims above 5,000 kilometres you must use the logbook method or actual costs
to claim the entire amount.
Logbook method: You can claim the business-use percentage of each car expense, based on logbook records. You must record:
- when the logbook period begins and ends
- the car's odometer reading at the start and end of the logbook period
- details of each journey including
- start date and finishing date
- odometer readings at the start
and end
- kilometres travelled
- reason for the journey.
You
must keep the logbook for a period (at least 12 continuous weeks) that is
representative of your travel throughout the year. You can then use this for
five years.
Work
out the percentage of business travel from your logbook and use this to claim
your business-related car expenses. You can't claim capital costs such as the
purchase price of the car but you can claim this as depreciation.
Other
vehicles
For all other vehicles, you can't use the cents per
kilometre or logbook method. Your claims must be for actual costs for expenses,
based on receipts. You can use a diary or journal to separate private use from
business use. Ask this office for more guidance.
Companies and trusts
If you operate your business as a company or trust, you can only claim the actual costs for motor vehicle expenses that are part of the everyday running of your business (such as travelling to and from different business premises, visiting clients or picking up goods for sale). Actual costs are based on receipts for expenses incurred.Note
that you cannot use a simplified method, such as cents per kilometre, to
calculate your claim.
Make
sure private use is separated from business use - by keeping a logbook or
diary, recording the purpose of each trip and what portion was for business.
If
your business is a private company that provides a vehicle to a shareholder or
their associate to use in their capacity other than as an employee, this may be
treated as a dividend or loan (known as Division 7A) that could affect the
deductibility of your motor vehicle expenses. Ask us if this seems to fit your
circumstances.
Motor vehicle ownership
There
are further considerations depending on the ownership of the vehicle.
Vehicle
owned or leased by your business:
Your business can claim a deduction for the running expenses of a vehicle that
is owned or leased by your business.
If
the vehicle is available for private use by an employee or their associate
(such as a spouse), fringe benefits tax (FBT) may apply.
Vehicle
owned by your employee: If your employee uses
their own vehicle for business-related purposes and you pay them a motor
vehicle allowance or reimburse them their costs, your business can claim a
deduction for the allowance or expenses reimbursed, such as the cost of fuel.
Note
that you can't claim depreciation if the vehicle is owned by your employee.
Your
employee can claim a deduction for costs related to the business use of their
vehicle in their own tax return, less any reimbursements or allowance they
received from your business.
Depreciation of a motor vehicle
If
you work out your deduction for expenses using the logbook method or actual
costs, then you can generally claim a deduction for capital costs, such as the
purchase price of a motor vehicle, over a period of time. This is known as
depreciation or a decline in value.
You can apply the:
- simplified depreciation rules - by adding the motor vehicle's cost to the small business pool or using the instant asset write-off (if eligible), or
- general depreciation rules - by claiming a deduction over the effective life of the asset.
You
can only claim depreciation on the business portion of the motor vehicle's
cost.
If the business vehicle is a car, there's a limit on the cost you can use to work out your depreciation claim. For the 2017-18 and 2018-19 income years, the limit is:
- $57,581, or
- the cost of the vehicle if it's less than this amount.
If
you use the cents per kilometre method, depreciation of the vehicle is already
taken into account.
Records
you need to keep
The records you need to keep depends on the method you use
to calculate your motor vehicle expenses. Regardless of the method you use, you
will need to keep:
- loan or lease documents
- details on how you calculated your claim
- tax invoices
- registration papers.
Please get in touch if you require any guidance on
any of the above matters.
AV Chartered Accountants - Committed to Your Business Success
Two convenient locations: