Comprehensive Guide on Vehicle Expense Tax Deductions

A business car tax deduction offers a valuable opportunity to reduce your tax obligations and save money, especially for small businesses or self-employed people.

According to the Australian Taxation Office (ATO), you can claim a tax deduction for vehicle expenses only when using it for work-related activities. That means, using a business car for personal activities won’t get you any deduction.

Here’s a more detailed guide on what you need to know about this tax deduction.

Which types of vehicles qualify for expense deductions?

You can get expense deductions for all business vehicles; however, the kind of deduction you qualify for will vary based on the vehicle type.

The ATO provides two categories of vehicles that have separate kinds of deductions:

• Cars: Vehicles carrying loads of less than one tonne, with less than 9 passengers. These are four-wheeled vehicles like passenger cars, station wagons, or sport utility vehicles.

• Motor vehicles: They include motorcycles, scooters, or similar vehicles. Also, vehicles carrying loads greater than one tonne like utes, trucks, or other heavy vehicles. And those carrying 9 or more passengers like minibuses.

Do you have to own the car to get a tax deduction?

No.

You can get different kinds of work-related car expense deductions when using:

- a car you own

- leased vehicles

- hired cars (through a hire-purchase arrangement)

- another person’s car

Which work-related activities are tax deductible?

Note that certain activities may not be considered work-related.

So, what is the business use of a car?

To claim a deduction, the work-related activities can be:

- work duties like travelling from your regular workplace to meet clients

- attending work-related conferences

- delivering items

- collecting supplies

- travelling between two or more separate work locations

Is car travel between home and work deductible?

Not really.

Generally, you can't claim expenses for travel between home and your normal workplace. This is private travel even if you live far away or work outside normal business hours.

However, you can claim expenses between home and your workplace in a few cases, like you’re required to start work at home or you continually travel between different work sites.

How to calculate your tax deductions

• For vehicles classified as “cars,” you can use either the cents per kilometre or logbook calculation methods. ATO has provided a useful work-related car expenses calculator for either method.

• For other vehicle types, you’ll use the actual cost method.

What if you have more than one car?

You can actually use different calculation methods for each car, and you can even change the calculation method for one car on different income years.

How to use the cents per kilometre method?

The ATO sets a specific rate for the cents per kilometre method for each financial year. The 2021/2022 rate is 72 cents per kilometre, and the 2022/2023 rate is 78 cents per kilometre.

To calculate your deduction, simply multiply the applicable rate by the number of business kilometres you travel.

How to use the logbook method?

For the logbook method, you’ll calculate the percentage ratio of work-related travel to the total travel and multiply that by the total deductible expenses.

How to use the actual cost method?

This applies to vehicles which are not classified as “cars.”

Here, you’ll calculate the percentage ratio of work-related travel to the total travel and multiply that by the total expenses.

Which calculation method is best?

Depending on certain factors like the size of your car’s engine and the travel distance, you may get varying deductions from different calculation methods. Therefore, the method you use will depend on your individual circumstances.

Generally, the logbook method would be preferable to the cents per kilometre method for higher business usage.

How to record expenses for your car deductions?

To benefit from and calculate your tax deductions, you must diligently keep all the necessary records.

The specifically required records vary based on the calculation method you choose.

How to record expenses for the cents per kilometre and logbook methods

You can use the myDeductions tool on the ATO app (from the Google Play Store or the Apple App Store) to keep records for either the cents per kilometre or the logbook method.

The myDeductions tool offers three recording options: point-to-point, GPS, and odometer trips.

Unlike the cents per kilometre method which simply requires the business kilometres travelled, the logbook method requires that your logbook features a minimum continuous 12-week period of work-related trips. It requires both a valid logbook and odometer readings of the start and end of your logbook period for the income year.

Keep these records for five years after your latest income year.

How to record expenses for the actual cost method?

For the actual cost method, you can keep a logbook to show all your costs and how you calculated your percentage ratio of work-related travel to the overall travel. You can also use the myDeductions tool in the ATO app.

Frequently asked questions (FAQs)

What is the maximum amount of tax deduction that you can claim?

Using the cents per kilometre calculation method, you can claim a maximum of 5,000 business kilometres per car within the income year. If you use the car with another joint owner for separate business activities, each of you can claim a maximum of 5,000 business kilometres.

Using the logbook or actual cost methods, you won’t have a limit on the expenses you can claim.

Can you claim deductions for damage costs from car accidents?

If you’re using your own vehicle during work-related activities and you get involved in an accident that damages another vehicle, you may get a deduction.

Such a deduction would cover the costs of repairing your vehicle. And it may also cover damages or compensation for any damage to the other vehicle, in case you’re liable.

Why Do You Need Professional Tax Advice for Your Tax Deductions?

To benefit fully from business car expense deductions and other available tax write-offs, you’ll need expert advice from professional tax agents. This will also help you avoid many unforeseen pitfalls that can lead to costly penalties and fines.

That’s where we come in. Cleverly Accounting has a team of friendly and attentive accountants who can help you to optimise your tax bills and lodge a return on your behalf.

Call us today on (08) 6186 1998.

Disclaimer: the information in this article is general advice only, it does not take into account your specific needs or circumstances. Before taking any action, please consider whether this advice is appropriate to your financial objectives and needs and seek professional financial advice before making any financial decisions.