Vehicle expenses

Driven to deduction

Allowable claims |  The methods |  Input tax credit claims

The Tax Office reports that work-related expenses are the most common-claimed tax deductions, and that around seven million people make such claims in any tax year – with one of the most common components being car expenses. This would include employees and the self employed.

Vehicle expenses have therefore become a very regulated area for claiming deductions, so knowing the rules is paramount before you commit to such a deduction strategy. It is not normally allowed, for example, to claim the cost of trips between home and work, even if you do minor tasks on the way (such as for example, picking up the mail).

This is also the case where you may be called into work while otherwise at home (if you were 'on call' for example), or if you worked shifts that are outside usual work hours. The fact that there happens to be no public transport near where you work also doesn't matter.

Allowable claims
Car expenses are costs incurred as a result of using your car for business purposes – that is, to produce assessable income. The rules do allow a claim however if you need to carry bulky items (like an extension ladder) that can't be left at the workplace, or you have multiple sites of work that you travel between as part of your business activities, or your home is a 'base' of work (and you travelled from there to another site, such as a client's premises, to continue that work).

The methods
To claim legitimate car expenses, the first step is to work out (and record) how many of the kilometres travelled are business kilometres. There are four methods to choose from for the self employed and for partnerships (that include at least one individual, not just 'business entities'), and you can take up the method that will give you the largest deduction – provided you have the back-up evidence if you're asked for it.

The four options are;
• cents per kilometre
• 12% of original value
• one-third of actual expenses, and
• the logbook method.

Members can see details of the four methods in the extended article.

For those carrying on a business via a company or trust, a deduction can be claimed for all operating costs in respect of a car, including depreciation (if owned) and lease payments (for lessees), to the extent that the car is used for business purposes.

Input tax credit claims
If you are registered for GST, you will need all the car-related invoices to claim back the right amount of input tax credits. You will again need to know the business kilometres to work out the claimable percentage where the car is not used solely for business purposes.

One interesting benefit for employers is that where a car is supplied to an employee, and that employee is entitled to use the vehicle for private purposes, the employer (while subject to fringe benefits tax) will be able to claim input tax credit entitlements unaffected by this employee private use. This is because the Tax Office views the private use of the car by the employer as still qualifying as a 'creditable purpose', and therefore entitling the employer to claim full input tax credits.

Immediate write-off for purchase of motor vehicle from 2012-13
Announced in the Federal Budget 2011, small businesses will be able to claim up to $5,000 as an immediate deduction for the purchase of motor vehicles for vehicles acquired from 2012-13. The remainder of the value of any vehicle purchased to which the $5,000 immediate deduction applies would be included in a general business pool (depreciated at 15% in the first year then 30% thereafter).

Reviewed June 11, 2012

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