Motor Vehicle Deductions - Maximise Your Claim; Legitimately!
From July 2015 the ATO is making life a little bit simpler (a bit like Ford with their new Mustang). There will only be two methods for claiming your car expenses as a tax deduction. You can claim using either the Log Book or cents per kilometre method. We think this is a good thing because there are few people who claim the 1/3 of actual expenses or the 12% of original value so we will focus on the two the ATO are keeping. If you were claiming either of the two discontinued methods then you can still make a claim on that basis for the 2015 tax year.
When can you claim?
Firstly you must have used your car for a legitimate work related purpose. This means travel such as visiting clients or using your car to carry bulky tools that you use in your work. It does not generally include travel between your home and your workplace.
Your claim will be dependent not only on your travel but also on your records to substantiate your deduction. If you don't have adequate records the ATO can simply deny your claim, and believe us, they will. The records you need to keep will depend on the method you choose:
Log Book Method
You must keep a log book. You must keep a log book. You must keep a log book.
The log book method requires some hard yards. You have to maintain a log book for the car for 12 weeks but you cannot claim using this method if you do not have a complying log book. You also need to keep actual receipts for fuel, repairs & maintenance, registration & insurance.
We think it is a good idea to keep electronic records, take photo's or scan your receipts, but make sure you can locate them in 2-3 years if you need them. We can help with useful and cheap online tools for organising your records, just give us a call.
The work-related percentage from the log book is used to claim a portion of the capital & running costs of the car. So if your work-related percentage is 15% you can claim 15% of all the car expenses including; interest on your car loan, deprecation of the car, fuel, repairs & maintenance, registration & insurance. This can add up to a substantial tax deduction. But it all hinges on keeping that complying log book.
Cents per Kilometre Method
You don't require any written evidence under this method but you need to be able to show how you worked out your business kilometres (for example by showing diary records of work trips).
The cents per kilometre method is short & sweet but it is also limited. You can only claim 5,000 kilometres using this method (per person per vehicle… hint hint!! Maybe you can swap cars with your wife mid way through the year and effectively double your claim if you travel a lot of k's). In the 2015 financial year that means a maximum deduction if you are running car with an engine of 2,600cc or more of $3,850 (per person per vehicle).
So Which Method Should You Choose?
Simply, you should use the method that will give you the highest tax deduction.
However, that may not always be obvious at the start of the year so keep the log book and receipts and work it out later. Here are a couple of examples:
- If your log book percentage is 15% and you have travelled in excess of 5,000 k's, then unless you have spent around $27,000 on your running costs the per kilometre method will work out best for you. Claim 5,000 k's x $0.77 = $3,850
- If your percentage is 85% and you have spent $14,500 on your running costs then adopt the log book method. This will give you a claim of $14,500 x 85% = $12,325.
Still confused, give Jacqui Austin in our office a call on (07) 5439 1600 and let her walk you through it.