In my experience, people fall into one of two categories when it comes to cars. There’s me – I couldn’t care less what my car looks or performs like as long as it gets me to where I need to go. In a crisis, I’m able to check the oil and change a tyre, but other than that, I’m just not interested. At the other extreme are some people I know who drive very fancy (think expensive) cars, like to know exactly how it works and how it’s made and take pride in being able to change a tyre in under 3 minutes!
But, when it comes to cars and tax, we all follow the same rules. Today, we’re going through what tax deductions are available for motor vehicles as well as how you can claim eligible GST input tax credits.
Claiming motor vehicle expenses
If you use your motor vehicle for business or work related purposes, you are entitled to claim a tax deduction. There are two methods of calculating your claim.
Cents per kilometre. By far and away the easiest way to claim is using this method. It simply involves calculating how many kilometres you travelled for business and multiplying by the Tax Office’s standard rate (In 2018/19 this is $0.68). This rate is set to take into account all the costs associated with running your vehicle: fuel, depreciation, registration, repairs etc.
The only records you need to retain are how you calculated the kilometres travelled. This could be a diary entry for example. The catch is that this is limited to a total of 5,000 kilometres in a year. If you travel more than 5,000 kilometres you can still use the method, but you can only claim 5,000 kilometres.
Log book method: This is a more complex way of claiming motor vehicle expenses and involves keeping a log book of your vehicle use for a continuous 12 week period. The log book establishes the business use percentage. You must then retain all receipts related to the running and maintenance of the vehicle (fuel, repairs etc). You can also claim depreciation based on the cost of the vehicle. A proportion of the running costs are claimed based on the established business use percentage.
The log book must:
- Record every trip (both business and personal).
- Be for a 12 week period which is representative of normal use (ie you can’t manipulate so that it includes a period where you have done an unusually large number of long business trips. Likewise you wouldn’t do when you have been on leave).
- Include date of travel, odometer readings at beginning and end of trip, kilometres travelled and purpose of trip.
Be updated at least every five years (or when pattern of travel changes significantly. The log book can be prepared in an electronic format (and there are lots of apps out there to help), but entries should be prepared as close as possible to when the trip took place.
You must choose one method for the year and you are able to change each year depending on which method provides you with highest deduction.
As with all deductions, records must be retained (including receipts where relevant) for a period of 5 years from when your return is lodged.
Claiming GST input tax credits
If you are running a business, are registered for GST and are using the log book method, you are able to claim the input tax credits on your motor vehicle running costs.
However the catch is that if your vehicle is used for both private and business purposes, you can only claim the business portion of the input tax credits. If the vehicle is not used 100% for business, the value of the input tax credits claimed must be reduced by the proportion of private use. If you are a small business entity, the ATO allows you to make a single adjustment at the end of the year rather than adjusting every transaction.
If you purchase a motor vehicle, you are also able to claim the input tax credits on the purchase price of the vehicle. The amount you can claim is subject to the luxury car tax limit. This means that you can only claim input tax credits up to the luxury car tax limit of $66,331 for regular vehicles and $75,526 for fuel efficient vehicles (threshold for 2018/19 financial year). If your vehicle cost more than this, the maximum input tax credit you can claim is one-eleventh of the luxury car limit amount regardless of how much you use the vehicle in carrying on your business. If your vehicle costs less than these limits, you can claim all of the input tax credits on the purchase price. However, if the vehicle is used for both business and private purposes, the input tax credits claimed must be reduced by the personal use percentage.
Need some help to maximise your motor vehicle claim? I offer a FREE 30 minute initial consultation. You can easily book online here and I look forward to helping you sort your finances!