Claiming car expenses for business purposes.
Ah yes. The tax deduction that seems to have ‘werk perk’ scrawled all over it. Yet, as any accountant or tax agent will tell you, it’s also the most misunderstood. When claimed incorrectly, it can have the Australian Tax Office (ATO) sending you a ‘please explain’ letter.
So, what are the do’s and don’ts of claiming business related car expenses? We’re glad you asked because we’ve gathered some info and made some lists. Just for you.
Before you read on we want to know that while we do our best to give you correct info, this is basic information only and it may be subject to change by the ATO. You should ALWAYS check with your accountant or tax agent to ensure you get the latest advice tailored to your circumstances.
Who Can Claim Car Expenses for Business?
If you need to use your car for work purposes, and you’re not compensated for the costs, you can claim it on your tax. This applies whether you are an employee or running your own business.
There are two ways to keep track of your work-related car travel:
- Cents per kilometre method, or;
- A vehicle logbook
Of course, you need to own the car to be able to claim. If your employer owns it, or you have use of it as part of a salary package, you can’t claim. Strangely enough, the ATO frowns on double dipping.
You also need to keep a record of all other business-related car expenses, such as insurance, registration, servicing and repairs.
Let’s look further at car expense claims if you’re a business owner, which is very similar to what you can claim as an employee.
What Types of People Use a Car for Work?
There’s no possible way we could list every person who would use their car for work and be entitled to claim. But we can easily name drop some industries and roles that are very likely to be able to do just that.
Freelance *insert name of freelance job*
- Copywriters and journalists
- Marketing and advertising types
- Mobile hairdressers
- Dog walkers and groomers
- Mobile make-up artists
- IT consultants
- Website developers
- Graphic designers
- Property stylists
- Academic and music tutors
- Event coordinators
- Virtual assistants
- Travel consultants
With the gig economy on the rise, the list is endless. And with recent reports stating that around seven percent of working Australians are employed in this way, that assortment will continue to grow. Which makes information like this blog even more important. HINT: Bookmark it, just in case 😉
Yes, they do still exist and yes, they do still trek door to door (although more likely business to business these days). Think brokers, party plan sales reps and so on. Many spend much of each day in their car, using it as a mobile workplace and taking advantage of in-car technology.
No point spending time in an office or working from home when face to face relationships are at the heart of your sales.
What a tradie (skilled manual worker) can claim depends on whether they’re an employee or operating a small business, including as a sole trader. Even as an employee, they may still be able to claim on some very specific trips between home and work. Check out the ATO website for more tradie specific info.
Claiming car expenses isn’t complicated. As a general rule, if you travel between two places of work, carry specialised tools or equipment, deliver or collect supplies, attend work-related conferences, or visit clients for meetings or to work ‘in-house’ with them, you may be able to claim some of your expenses at tax time.
Oh, here we go. The great joy of every business owner’s life.
Admin. Record keeping. Figuring out what car expenses are tax deductible.
You can feel the life being sucked out of you just reading those words, can’t you? But you’ve made it this far, so let’s keep going.
Whether you like kicking it old school and use paper and pen, or you use an app, there are two ways you can keep track of work-related car travel. As mentioned above, that’s cents per kilometre or the vehicle logbook method for claiming car expenses.
Let’s take a closer look at these ways the ATO wants you to use for claiming car expenses for business purposes:
Cents per kilometre
- This is based on a set rate for each business kilometre you travel.
- You can claim up to 5,000 kilometres per year, per vehicle. If you travel over 5,000 kilometres, this process isn’t for you. You’ll need to use the logbook.
- You calculate by multiplying the total business kilometres travelled by the standard rate of 68 cents per kilometre. This amount considers all operating expenses, including depreciation.
- You don’t need written evidence, but you must be able to show you’ve driven the kilometres claimed. A diary of work-related journeys (including the kilometres travelled) will do.
- Based on the percentage you use your car for business.
- You must keep a log for a minimum 12 weeks and it must be updated every 5 years.
- Through your logbook, you can claim all expenses that relate to the car (including a portion of your car insurance), at your percentage of business use.
- The logbook must record all business journeys made in the car over the 12-week period, noting;
- the logbook period
- the car’s odometer readings at the start and end of the period
- total kilometres travelled
- the business percentage for the logbook period
- For each journey in the logbook, you must record:
- start and end times of the journey
- odometer readings at the start and end of the journey
- kilometres travelled
- reasons for the journey
- If you make two or more trips in a row on the same day. If so, you can note them as a single entry.
- You’ll need to keep all receipts to validate your claim. This includes going beyond kilometres travelled and into insurance, registration, servicing and repairs.
- Petrol can be guesstimated using the start and end odometer readings, showing the total kilometres travelled.
Templates and Apps
Logbooks are available from newsagents, major department stores and stationery suppliers. A great excuse for a trip to Officeworks. YAY! There are also plenty of vehicle log book templates you can download online.
As for the apps, here are three of our faves. Best of all, they’ve been designed specifically for Australians and are ATO compliant:
- Vehicle Logger – free (with ads). Relying on cloud-based tech, the app supports kilometres or mile metrics, uses GPS tracking and you can enter data manually. It’s simple but perfect if you don’t need to track fuel usage or other diagnostics.
- Driversnote – Lite version is free, while Basic and Enterprise versions are paid. The free version offers up to 20 free GPS tracked trips per month, but you need to remember to use the stop and start button. The best thing is it automatically backs up.
- ATO Vehicle Logbook – free from the ATO, it’s very basic but does the job. You can record and manage work related expenses and trips and swap between GPS and manual mode. As of June 2018, you can upload your myDeductions records to the ATO.
To DIY or Not to DIY
The age-old question when it comes to tax time. There’s no right or wrong answer, just what’s right or wrong for you. If in doubt about what you can and can’t claim, it’s always best to see an expert so you don’t end up on the ATO naughty list.
The other main consideration is, do you have time, or really want to do it?
If tax and numbers are something you enjoy (who even are you?) and you know what you’re doing, then that’s probably a silly question. If you are doing it yourself, you may want to check out the ATO’s work related car expenses calculator.
But if you can think of a multitude of other things you’d rather do than tax (we hear you), then support your local economy, hire an accountant and let them sort it all out. As someone who lives and breathes taxes, they can usually find extra things you can claim, so the investment is probably worth it.
For many people, their car lies at the centre of how they conduct their work. For others, they only claim the occasional trip.
Either way, we hope you’re feeling far more confident in claiming of business related car expenses now. If you’re looking for other ways to save – why not contact us for a quote on your comprehensive car insurance?
We’re just like your favourite accountant, because we’re pros at finding great ways you can save money. Like our discount for people who are the only driver of their car. What are you waiting for? Let’s save some coins.
Over to You – Claiming Car Expenses for Business
Do you find claiming car expenses for work painful? Or do you have any tips to share? We’d love to know.
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