D1 – Work related car expenses
Use this section to help determine:
> Your eligibility for claiming a work-related motor vehicle
> The different options available to claim your tax deduction
> How to calculate your motor vehicle tax deduction
> The record keeping requirements
> Common mistakes made by taxpayers
Am I eligible to claim my car as a tax deduction?
1. Set-Rate Method (Cents Per Km)
- Do I need to keep receipts under the Set-Rate (Cents Per Kilometer) method?
The purpose the Set-Rate method is so that you do not have to ‘keep receipts’ for the running costs of your vehicle. You will however have to be able to prove the following:
- You own the motor vehicle that is being claimed for;
- You use this vehicle for one of the eligible car travel categories (see the categories under – ‘Am I eligible to claim my car as a tax deduction?’); and
- You have the calculation details as to how you arose the prescribed km amount being claimed.
See further details under the next item for the required records needed.
- What records do I need to keep under the Set-Rate (Cents Per Kilometer) method?
In the event of an audit with the ATO under label D1 – Work-related car expenses (Set-Rate Method), the following detail must be provided to prove your ownership and use of your motor vehicle:
- A record of how you worked out your business kilometers per car, per income year.
- Copies of the purchase of lease documents for your car.
- Copies of the car registration certificate or papers.
- Details of the business travel you undertook during the income year – for example, you should advise the:
- Purpose of the travel undertake
- Frequency of any work-related travel
- Number of kilometers travelled for work-related purposes
- If you claim is based upon travel you undertook for your employer, a letter from your employer (with a contact name and phone number) confirming you are required to use your car in the course of carrying out your employment duties.
- What are the most common mistakes made under the Set-Rate (Cents Per Km) method?
The most common mistakes and issues published by the ATO under this label:
- Claiming 5,000km without being able to show how you had travelled 5,000km or more.
- Claiming more than 5,000km for a single vehicle in a single year.
- Claiming for a car that you do not own.
- How do I calculate my tax deduction under the Set-Rate (Cents Per Km Method)?
2. Logbook Method
- Do I need to keep receipts under the Logbook Method?
Yes, you will need to keep copies of your original receipts for all car expenses claimed:
- Except for fuel and oil receipts if you have used odometer records to estimate your fuel and oil expenses; or
- Including all fuel and oil receipts if you have not used odometer records to estimate your fuel and oil expenses.
In addition to this, you will also need to maintain a logbook for a 12 week period and keep this with your tax records. This can continue to be used for a total of 5 years if your circumstances remain constant.
- What records do I need to keep under the Logbook Method?
If you claimed a deduction for car expenses using the ‘logbook’ method, you must be able to provide all the following records:
- Details of how your claim was calculated (i.e a description of each item included in the claim and the amount claimed for each item).
- Copies of the purchase or lease document for your car.
- The calculation for the decline in value (depreciation) of the motor vehicle.
- Copies of the car registration certificate or papers for the period you are claiming car expenses.
- Copies of your logbook and odometer records. The logbook must contain:
- When the logbook period begins and ends.
- The vehicles odometer readings at the start and end of the logbook period.
- The total number of kilometers the car travelled during the logbook period.
- The number of kilometers travelled for each journey recorded in the logbook (if you made two or more journeys in a row on the same day, you can record them as a single journey).
- You will need to record the:
- Start and finishing times of the journey;
- Odometer readings at the start and end of the journey;
- Business kilometers travelled; and
- Reasons for the journey.
- The business use percentage for the logbook period.
- The odometer readings at the start and end of each income year you used the logbook method.
- Copies of your original receipts for all car expenses claimed:
- Except for fuel and oil receipts if you have used odometer records to estimate your fuel and oil expenses; or
- Including all fuel and oil receipts if you have not used odometer records to estimate your fuel and oil expenses.
- If you claim is based upon travel you undertook for your employer, a letter from your employer (with a contact name and phone number) confirming you are required to use your car in the course of carrying out your employment duties.
- What are the most common mistakes made under the Logbook method?
- How do I calculate my tax deduction under the Logbook Method?
You will need to keep a logbook record of your work-related Vs private motor vehicle travel for a 12 weeks period. This will allow you to determine what your ‘business use percentage’ (claimable amount) is.
For example, if you travelled a total of 10,000 Km over a 12-week period (including private trips) and your business portion was 8,000 Km, your ‘business use percentage’ would be 80% ((8,000/10,000) x 100).
You can then claim the business use percentage portion of all the motor vehicle expenses incurred over the financial year. Typical costs include:
- Depreciation (cost and capital expenditure);
- Fuel;
- Insurance;
- Registration; and
- Repairs and maintenance.
Note that if your expenditure is capital in nature (replacement as opposed to a repair), it will need to be depreciated over the item’s useful life (multiplied by the business use percentage) rather than claimed fully in the first tax year.
Once you calculate your total motor vehicle expenses for the financial year, you can then total these amounts up and multiply this by you ‘business use percentage’. This will determine your total motor vehicle deductible amount under the logbook method.
For example, if your total motor vehicle expenses for the year tallied to $12,000 and your total ‘business use percentage’ was 80%, your total deductible amount would be $9,600 ($12,000 x 80%).
