Tax Deductions: How to Claim Work Related Car Expenses in Tax Return

Car expenses is one of the major expenses claimed by taxpayers in Australia. Car is required by range of taxpayers depending on their work requirements. Car expenses includes all the expenses and outgoings incurred in relation to operating the car for work use. [except travel from home to work and back]. Australian tax office allows two methods for calculating car usage:
  1. Cents per Kilometer method
  2. Log Book Method
If the travel involves private travel then you can claim only the work-related portion. You can claim a deduction for work-related car expenses if you use your own car in the course of performing your job as an employee, for example, to:
  • carry bulky tools or equipment
  • attend conferences or meetings
  • deliver items or collect supplies
  • travel between two separate places of employment (for example, when you have a second job)
  • travel from your normal workplace to an alternative workplace and back to your normal workplace or directly home
  • travel from your home to an alternative workplace and then to your normal workplace or directly home (for example, if you travel to a client’s premises)
  • perform itinerant work.
  • If you receive an allowance from your employer for car expenses, it is an assessable income and the allowance must be included on your tax return. This allowance is generally shown on your payment summary. You can not usually claim the cost of travel between home and work because this travel is private

Cents per Kilometer method

  • Under the cents per kilometer method – taxpayers can claim a maximum of 5,000 business kilometers per vehicle.
  • Although ATO says that taxpayers do not need written evidence to show how many kilometers have been travelled, but they may ask taxpayers to show how the kilometers were worked out. Best way to do that is to maintain a diary or an excel sheet.
  • You can record a Date of Travel, Description of travel and purpose of travel, Kilometers travelled. The diary can be maintained which can be either hand written, or you can also maintain an excel sheet for the same.
  • Australian tax office uses a term called “reasonable estimate” of the kilometers travelled.
  • Under this method the maximum amount claimable is $3,300 which is 5,000 km multiplied by 66 cents.
  • Even if you have estimated you have travelled more than 5,000 km you cannot exceed the $3,300 deduction.
  • In 2017 tax year Australian tax office has been vary about the taxpayers claiming straight 5,000 KM deduction or $3,300 deduction. ATO requires taxpayers to provide a convincing estimation of the KM claimed. Thus, I would suggest a written record is a must even if the substantiation requirements are relaxed.
  • If you are your partner has names on the same car and both ae using the car for income producing purposes, then both can claim maximum 5,000 km under this method separately.
  • Excel Sheet – Downloadable – Car-Diary-Record

Log Book Method

  • This method requires substantiation meaning you need receipts of all the expenses claimed for the car. You need to maintain a log book.
  • This can be easily purchased from Australia post or Office works. Or you can also prepare one on an excel sheet or use mobile applications.
  • I have created one for you ease of use and can be downloaded here:
    • Log Book Excel Sheet
  • In a log book you need to record:
    • Vehicle Registration Number
    • Year of preparing the log book
    • Description of Vehicle
    • Date of Travel
    • Odometer Start number for each Travel
    • Odometer End number for each Travel
    • You need to record both Work use of Vehicle as well as Private use of vehicle
    • You need to maintain a Log book for 12 WEEKS continuous period
    • After which work use percentage can be determined.
  • Once work use percentage is determined you can claim following expenses up to that percentage:
    • Petrol
    • Oil
    • Registration
    • Insurance
    • Repairs and Service
    • Interest on Car Loan
    • Lease expenses
    • Depreciation of Car
  • We need receipts and invoices to claim each part of the Vehicle expenses
  • This Log book can be used for FIVE years and you only need to make a new log book once FIVE years have passed or a NEW vehicle has been purchased.
The tax savings of both method varies according to tax payers individual circumstances. We can take an example to compare 2 different tax payers tax return on same income and both claiming 8,000 KM, Here we assume both taxpayers have maintained a diary and a log book and have evidence to make the claim  in case they asked by ATO. We also assume that both tax payers have $80,000 Gross Income and their employer has deducted $19,147.00 tax. We will consider 3 Scenarios
  • Scene 1 – Both Tax Payers do not claim any deduction
  • Scene 2 – Taxpayer 1 Claims Cents per KM method
  • Scene 3 – Taxpayer 2 claims Log Book Method
This simply shows that when Log book is claimed extra deduction can be claimed as compared to Cents per Kilometer method. But Log book method requires full substantiation which means you need each and every receipt or invoice of your claims and you need to save the evidences for at least FIVE years.

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