February 2020
Maintaining accurate records for motor vehicle car expense claims is vital to ensure you don’t get your claim rejected by the ATO.
The ATO indicated last year that they were putting work-related car expenses under the spotlight. With this added level of scrutiny, now is the time to review your method of calculating motor vehicle expense claims to ensure accuracy and avoid your claim being disallowed.
If you use your vehicle for work related purposes, you may be eligible to claim a deduction. Common motor vehicle expenses you can claim include: fuel and oil, repairs and servicing, insurance, lease payments, interest on the car loan, registration, and depreciation.
Depending on your circumstances, you can use one of two methods to calculate your deduction – the cents per kilometre method or the log book method.
The cents per kilometre method allows you to claim up to a maximum of 5,000 business km per year, calculated at 68c per km. You do not need to keep a record of each trip, but you do need to be able to satisfactorily substantiate how you calculated your claim (e.g. with diary or calendar records).
The logbook method must be used for claims over 5,000 km (and can also be used for claims under 5,000 km). This method requires you to make detailed records of your business car usage over a period of 12 continuous weeks. This period of time must also be representative of your normal business usage.
The logbook method requires you to make a detailed record of each journey including:
- The start and end date
- The odometer reading at the start and end of the journey
- How many kilometres were travelled
- The reason for the trip (business or private – if it’s a business trip you will need to be specific, e.g. client visit, site visit etc.)
- Record the make, model, engine capacity and registration number of the vehicle
You also need to make a record of the odometer reading at the start and end of the 12 week log book period.
Once you have completed your log book you can work out the percentage of business kilometres travelled and use it to calculate your claim. The logbook will remain valid for 5 years as long as your pattern of use remains constant, even if a new car has been purchased.
It is vital that you accurately record this information to avoid your claim being disallowed. If the ATO decides to audit your claim, they may cross examine your log book with your business or employer records (e.g. calendar entries, employer verification) and if the information is deemed false then the claim will be disallowed.
Make sure you keep the following records to substantiate your claims:
- Details of the kilometres travelled for business and private use
- Odometer readings as at 30 June each year for tax purposes and 1 April each year for FBT purposes
- Receipts for fuel, oil, repairs, servicing and insurance cover
- Loan or lease documents
- Tax invoices
- Registration papers
- Details of how you calculated your claim
Other things to remember:
- As a general rule, trips conducted between your home and place of work are not deductible (except if you
are required to carry bulky equipment) - Make sure you aren’t trying to claim for expenses that have already been reimbursed by your employer
- Regardless of which method you use to calculate your expenses, you must keep appropriate records to
substantiate how you arrived at your calculated claim.
For more information or to discuss how this may apply to your individual circumstances, contact the team at Shakespeare on 08 9321 2111.
Source and further reading:
https://www.ato.gov.au/Newsroom/smallbusiness/General/Confused-by-motor-vehicle-expenses-/
https://www.ato.gov.au/Media-centre/Media-releases/ATO-puts-the-brakes-on-dodgy-car-claims/
General disclaimer: Our firm provides the information on this website for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles on this website are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose
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