Deducting Car Expenses in Your Tax Return
You can claim the cost of car expenses in your Tax Return to the extent that they are an allowable tax deduction. There has been extensive case law established about the deduction of car expenses, and the Australian Taxation Office has developed a clear set of policies and procedures to make clear what kind of car travel is deductible and how the Tax deduction will be determined.
Car travel between home and work is not ordinarily tax deductible unless you are transporting bulky equipment and you cannot leave it at your workplace. For instance, if you are a plumber and you transport your tools to and from work, then the trip will be a Tax deductible expense. Also, if you travel from one job to a second job, then that travel will be a Tax deductible expense.
The government has simplified the car expense deductions for 2015–16 and future income years. From 1 July 2015, the method of using one-third of actual expenses and 12% of the car’s original value have been abolished.
There are two different methods available from 1st of July 2015 to work out your tax deduction for work related car expenses:
Cents Per Kilometre Method
Using the cents per kilometre method, your Tax deduction is based on a set rate per kilometre of estimated travel. You do not need written evidence (i.e. petrol receipts) to substantiate your claim using this method. However, you need to be able to show how you worked out your eligible travelled km by keeping a personal diary. In case you and another joint owner use the same car for separate income-producing purposes, you can both claim up to a maximum of 5,000 kilometres. The maximum travel distance you can claim under this method is 5,000kms using the Commissioner of Taxation pre-determined rate for each relevant financial year.
Using the logbook method, you determine the work-use related proportion of all expenses based on a logbook that you keep for a minimum continuous period of 12 weeks. You then apply that percentage to all expenses that were incurred during the financial year to work out your car expenses deduction. Expenses include running costs and depreciation in the value but not capital costs, such as the purchase price of your car, the principal on any money borrowed to buy it and any improvement costs. You can claim fuel and oil costs based on either your actual receipts or you can estimate the expenses based on odometer records that show readings from the start and the end of the period you used the car during the year. You need written evidence for all other expenses for the car. Although the keeping of a logbook for 12 weeks is onerous, you can use the same logbook for up to four years, and it usually results in the biggest Tax benefit especially for those travelling long distances for work.
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