Many of us are required to use our own car for work related travel, besides driving to and from work each day.
So what types of car travel are deductible for income tax purposes?
The most common scenario would be that once you have arrived at your regular work place, you then have to head back out to visit clients/customers. Sales representatives and real estate agents are typical for this category.
You could also claim for car travel if you are delivering goods or collecting supplies, if you travel from your first employer to a second employer or drive to a seminar or conference directly from work.
Another category would be if you perform itinerant work, meaning you travel from one job site to the next to the next etc. This would be typical for tradies and would include carrying bulky equipment that you cannot leave at work or at a job site, either as a self employed person or a trades employee.
How do I calculate the allowable deductions?
From 1 July 2015 the ATO has simplified the way we can claim for car expenses, there are now only 2 methods you can choose from:
1) Cents per Kilometre method
Under this method you simply calculate the number work work related (eligible for deduction) travelled kms, then apply the statutory 66 cents per km rate. This will give you the $ amount you can claim.
Things to note are that you can only claim a maximum of 5000 km per financial year per car, you don't need written evidence however you need to be able to show how you have calculated the work related kilometres, for example through diary records.
2) Logbook method
For many employees and sole traders who travel in excess of 5000 work kilometres per year, this is the most effective way of claiming your motor vehicle expenses, particularly if you are in receipt of a car allowance as part of your salary.
To be able to claim using this method, you need to keep a log book for a minimum continuous period of 12 weeks. Making sure you record the starting kms as per your odometer reading, record all work related trips, as well as the km reading at the end of the period. This will enable you to calculate the so called "business/work use percentage".
This percentage is then applied to all eligible expenses, including running costs such as fuel, insurance, registration, repairs & maintenance, as well as decline in value and interest on finance.
In addition to the logbook you will need written evidence for all expenses.
Please note that if you are using a car owned by someone else, ie not registered in your name, you may still be able to claim some expenses, but these would fall under the category of D2 - Travel expenses.
If you would like to find out more on how you can maximize your motor vehicle claim, call or email us today!