Claiming motor vehicle expenses is a topic that causes somewhat confusion every year. People are unsure of what can or cannot be claimed, the methods of claiming the motor vehicle expenses and what evidence/proof is required for each method. The principal points to remember are:
The way your claim is calculated is dependent on your business structure;
You must apportion expenses between business and private use;
The ATO requires you to keep records for five years.
Types of expenses you can claim
The common types of motor vehicle expenses you can claim include:
fuel and oil
repairs and servicing
interest on a motor vehicle loan
depreciation (decline in value) of the vehicle.
How business structure can impact how you claim your motor vehicle expenses
Depending on your type of business structure it can vary how you can claim motor vehicles deductions and the obligations you have:
If you are claiming deductions for using your own car in performing your employment duties – including a car that is leased or hired – it is treated as a motor vehicle expense. If you use someone else’s car for work purposes, you may be able to claim the direct costs such as fuel as a travel expense.
What can and cannot be claimed?
Driving to and from your workplace is generally considered private travel however, in certain circumstances including traveling between two workplaces you may be able to claim deductions.
When you can claim?
You can claim the cost of travelling:
directly between two separate workplaces – for example, when you have a second job (providing one of the places isn't your home);
to attend conferences or meetings;
to deliver or collect supplies’
from your normal workplace to an alternative workplace that is not a regular workplace (for example, a client's premises) while still on duty, and back to your normal workplace or directly home;
if your home was a base of employment – you were required to start your work at home and travelled to a workplace to continue your work for the same employer;
if you had shifting places of employment – you regularly work at more than one site each day before returning home;
from your home to an alternative workplace that is not a regular workplace for work purposes, and then to your normal workplace or directly home. This does not apply where the alternative workplace has become a regular workplace;
if you needed to carry bulky tools or equipment your employer requires you use for work and couldn't leave them at your workplace – for example, an extension ladder or a cello.
If you receive an allowance from your employer for car expenses, it is assessable income and the allowance must be included on your tax return. The allowance will be shown on your payment summary.
When you can’t claim?
As previously mentioned travelling between your home and workplace would be considered private use therefore cannot be claimed as an expense. This still applies even if you do the following:
you do minor work-related tasks – for example, picking up the mail on the way to work or home;
you have to drive between your home and your workplace more than once a day;
you are on call – for example, you are on stand-by duty and your employer contacts you at home to come into work;
there is no public transport near where you work;
you work outside normal business hours – for example, shift work or overtime;
your home was a place where you ran your own business and you travelled directly to a place of work where you worked for somebody else;
you do some work at home.
Individuals can claim expenses using either the cents per kilometre method or log-book method. More information on each method is listed below.
Sole traders and partnerships
If you operate your business as a sole trader or partnership (where at least one partner is an individual), the way to calculate your deduction depends on the type of vehicle and how it is used. The vehicle can be owned, leased, or hired under a hire purchase agreement.
You can only claim motor vehicle expenses that are part of the everyday running of your business (such as travelling to and from different business premises).
If the vehicle is used for both private and business purposes, you must exclude any private use.
A car is a motor vehicle that is designed to carry a load of less than one tone and fewer than nine passengers. For cars, you can use the cents per kilometer method or the logbook method.
Cents per kilometre method: You can claim a maximum of 5,000 business kilometers per car. The rate per kilometre (66 cents in 2017-18 and 68 cents in 2018-19) takes into account your car running expenses, including depreciation. You can’t make a separate claim for depreciation of the car’s value.
You don’t need written evidence, but you must be able to show how you worked out your business kilometers (for example, calendar or diary records).
For claims above 5,000 kilometres you must use the logbook method or actual costs to claim the entire amount.
Logbook method: You can claim the business-use percentage of each car expense, based on logbook records. You must record:
when the logbook period begins and ends;
the car’s odometer reading at the start and end of the logbook period;
details of each journey including:
start date and finishing date;
odometer readings at the start and end;
reason for the journey.
You must keep the logbook for a period of at least 12 continuous weeks that is representative of your travel throughout the year. You can then use this for five years.
Work out the percentage of business travel from your logbook and use this to claim your business-related car expenses. You can’t claim capital costs such as the purchase price of the car but you can claim this as depreciation.
If your motor vehicle is not a car it’s an “other vehicle”. Other vehicles include:
vehicles capable of carrying nine or more passengers such as minivans
vehicles with a capacity to carry loads of one tone or more such as utes or panel vans
For all other vehicles, you can’t use the cents per kilometre or logbook method. Your claims must be for actual costs for expenses, based on receipts. You can use a diary or journal to separate private use from business use.
Companies and trusts
If you operate your business as a company or trust, you can only claim the actual costs for motor vehicle expenses that are part of the everyday running of your business (such as travelling to and from different business premises, visiting clients or picking up goods for sale). Actual costs are based on receipts for expenses incurred.
Make sure private use is separated from business use by keeping a logbook or diary, recording the purpose of each trip and what portion was for business.
If your employee uses their own vehicle for business-related purposes and you pay them a motor vehicle allowance or reimburse them their costs, your business can claim a deduction for the allowance or expenses reimbursed, such as the cost of fuel.
Note that you can’t claim depreciation if the vehicle is owned by your employee.
Your employee can claim a deduction for costs related to the business use of their vehicle in their own tax return, less any reimbursements or allowance they received from your business.
Claiming motor vehicle depreciation
If you work out your deduction for expenses using the logbook method or actual costs, then you can generally claim a deduction for capital costs, such as the purchase price of a motor vehicle, over a period of time. This is known as depreciation or a decline in value.
You can apply the:
simplified depreciation rules – by adding the motor vehicle’s cost to the small business pool or using the instant asset write-off (if eligible), or
general depreciation rules – by claiming a deduction over the effective life of the asset.
You can only claim depreciation on the business portion of the motor vehicle’s cost.
If the business vehicle is a car, there’s a limit on the cost you can use to work out your depreciation claim. For the 2017-18 and 2018-19 income years, the limit is:
the cost of the vehicle if it’s less than this amount.
If you use the cents per kilometre method, depreciation of the vehicle is already taken into account.
No matter what method you use or what type of business structure you are, all records must be kept for a period of five years. This include: