Can I claim tax deduction for my car expenses? Yes but only if you use your car for work purposes, you are entitled to claim the expenses related to the business costs of your car.
In this article we will cover following car expenses tax deduction questions:
- Do I must own a car to claim tax deduction for expense? What I have hired or leased a car?
- Example of eligibility to claim car expenses as a tax deduction?
- How can I prove car expenses?
- How to calculate car expenses deduction?
- Cents per kilometre method to claim deduction for car expenses?
- Logbook method to claim deduction for car expenses?
1. Do I must own a car to claim tax deduction for expense? What I have hired or leased a car?
Most asked question about claiming car expenses: do I must own a car to be eligible to claim a deduction. The answer is No. You can claim a tax deduction for car expenses for underfollowing scenarios:
- Owned (even if it is not registered in your name)
- Leased (even if it is not registered in your name), or
- Hired under a hire-purchase agreement.
You can only claim work-related expenses for using a car that you owned, leased or hired (under a hire-purchase agreement).You cannot claim any expenses relating to a car owned or leased by someone else, including your employer or another member of your family.
2. Example of eligibility to claim car expenses as a tax deduction?
- Directly between two separate workplaces – for example, when you have a second job
- From your normal workplace to an alternative 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 started 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 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 you used for work and couldn't leave them at your workplace – for example, an extension ladder or a cello.
3. How can I prove car expenses?
To claim car expenses as tax deduction, you may need following:
- Written evidence for your car expenses (receipts, invoices or diary entries)
- Your car logbook and odometer records.
4. How to calculate car expenses deduction?
ATO has provided two methods to claim car expenses as following. You can choose which method to work out your car expenses depending upon the one that gives you the largest deduction or is most easy to calculate deduction. The two methods are:
- Cents per kilometre
Both methods require you to know or estimate your business kilometres. Business kilometres are the kilometres you travelled in the car in the course of earning assessable income (includes work-related activities).
5. Cents per kilometre method to claim deduction for car expenses?
The cents per km method of claiming motor vehicle expenses can be a lucrative claim, but you can only claim up to 5,000kms. No substantiation is needed, just a reasonable basis for the claim – e.g. 3 times a week from Mitchell to Woden for business meetings.
Interestingly, the 5,000kms is not claimable per person, but rather per car. So if you have 2 vehicles that you use for work, then you could claim 10,000 kms. If you change cars during the year, you can also claim 5,000kms for each car.
Follow below steps to calculate car expenses under cents per km method:
- Step 1: Multiply the total business kilometres travelled by 66 cents, which is the rate for all cars.
- Step 2: Divide your answer by 100 to work out the dollar amount you can claim.
- Step 3: If you are claiming for more than one car using this method, repeat the steps above and add up all the amounts.
6. Logbook method to claim deduction for car expenses?
If you use the logbook method, you can claim the business-use percentage of each car expense, based on the logbook records of your car’s usage. However, you must keep a logbook so you can work out the percentage. Also, you must have written evidence of your fuel and oil costs, or odometer readings on which your estimates are based and must have written evidence for all your other expenses.
Expenses include running costs and decline in value but not capital costs, such as the purchase price of your car, the principal on any money borrowed to buy it and any improvement costs.
Your first year
If this is the first year you have used the logbook method, you must keep a logbook during the income tax year for at least 12 continuous weeks. That 12-week period needs to be representative of your travel throughout the year.
Valid for five years
Each logbook you keep is valid for five years, but you may start a new logbook at any time.
If you establish your business-use percentage using a logbook from an earlier year, you must keep that logbook and maintain odometer readings in the following years.
Follow below steps to calculate car expenses under logbook method:
- Step 1: Work out the total kilometres travelled during the logbook period (12 weeks minimum) and how many of these were business kilometres.
- Step 2: Add up your total expenses including decline in value.
- Step 3: Multiply the amount at step 2 by your business use percentage from step 1 (or if the pattern of use of the car has changed then use the reasonable estimate you made).
Example for logbook method
At the end of the income year, Sam’s logbook shows he travelled a total of 11,000 kilometres, of which 6,600 were for business.
To work out the percentage the car was used for business purposes, Sam made the following calculation: 6,600/11,000 × 100 = 60%
Sam's total expenses, including depreciation, are $9,000 for the income year. To work out how much he could claim, Tim completed the following calculation: $9,000 × 60% = $5,400