Work-related car expenses are those you incur as an employee for using a car you owned, leased or hire under a hire-purchase agreement. For tax purposes, car expenses are considered as a loss or outgoing, including operating costs and depreciation. You can claim those expenses as a deduction when calculating your tax return.
What can you claim as a deduction?
- Car expenses you incurred in performing your employment duties.
- Travel between two separate places of employment.
- Travel from your normal workplace to an alternative workplace.
- Perform itinerant work.
These are not considered work-related car expenses
- The normal trip between home and work.
- Any expenses relating to motorcycles and vehicles with a carrying capacity of one tonne or more, or nine or more passengers, such as a utility truck and panel van.
- Any expenses relating to a car owned or leased by someone else, including your employer or another member of your family.
Tax deduction method
To work out the car expenses, you need to estimate first your business kilometres (work-related purposes) that you have travelled, and then choose between one of the following methods:
Method 1: cents per kilometre
- Up to 5,000 business kilometres per car and per year.
- You do not need written evidence, but you need to be able to show how you worked out your business kilometres.
- Where you and another joint owner use the car for separate income-producing purposes, you can each claim up to a maximum of 5,000 kilometres.
- You can claim 66c per work-related km.
Example: Andrew is an administration officer for a small business. Each day he does 4 trips in his car to collect/drop off the post and do the banking. He drives approximately 14km per day in work-related travel.
Therefore Andrew can claim:
-14km X 5 days = 70km p/week
-70km per week X 48 weeks (Andrew has 4 weeks leave each year) = 3360km
-3360km X $0.66 = $2217.60
This means at item D1 Andrew can claim a car expenses deduction about of $2217.60
Method 2: logbook
- Keep a logbook for 12 continuous weeks
- You must own the car
- You only need to complete the logbook process one time every five years (or less)
- Record all business trips AND all personal trips in your car logbook
- Keep receipts for all expenses related to your car, including
- Interest on loan costs
- Other running costs
Once you complete your logbook, it is possible to calculate your business-use percentage (is the percentage of kms you travelled in the car for work during the year divided by the total kms travelled by the car during the year). Then, you can claim the business percentage of all expenses related to your car.
Example: Dorothy is a sales manager and she kept a logbook for 12 weeks recording both work and personal trips. After that 12 weeks, Dorothy added up the total kilometres travelled on work-related trips. Then she added up the total mileage. Next she divided work kms by total kms and that is her work-related percentage. For Dorothy, it is 75%.
Dorothy travelled 1000 km in total during the 12-week logbook period. She travelled 850 km on work-related trips.
- 750km divided by 1000km = 75%
Dorothy adds up the receipts for all of her car expenses for the year, which total $7,950. Then she multiplies that by 85%, her work-related percentage.
- $7950 x 75% = $5962.50
Dorothy can claim $5962.50 worth of car expenses at Item D1 on her tax return.
Note: In the case that claim for work-related car expenses is 5,000 business kilometres or less, you can use one of the two methods that gives you the largest deduction or is most convenient.
If you need help to calculate your work-related car expenses, do not hesitate to contact us at [email protected] , or call us to (+ 61) 2 8317 1281. Precent can help you to determine what you can and can’t claim when using your car for business purposes to ensure your claim is correct.