Another financial new year has come and gone, so it’s time for most of us to start thinking about our taxes. Here are a few tips that may help with some of your car-related tax work.
Unless you’re on a novated lease, any kilometres you do in your car for your job or business can contribute towards a tax deduction. If you’re on a novated lease, this article does not apply to you and you're already entitled to a series of potential tax benefits, which we'll talk about in a future feature.
Note that the pointers we have here are general in nature and this article should not be taken as tax advice. Everyone’s situation is unique after all. The Australian Tax Office (ATO) website has a large amount of material concerning what can be claimed and how your tax deduction can be calculated. If in doubt, please try to engage an accountant.
Firstly, you need to figure out how many kilometres a year are driven for work. It’s best to consult this page by the ATO, as there are a number of rules for the types of driving can and can’t be counted as being for business.
For example, driving to and from work is considered personal travel. However, if you have two jobs and use your car to go between Employer A and Employer B, that journey can be claimed. Similarly, if you drive from your office to a client site or a secondary office, that’s claimable too.
Generally speaking, if your work driving patterns are repeatable and constant, or the number of kilometres per year for work are small, you should be okay with an estimated figure, so long as you’re able to back that number up with some basic maths and a reasonable train of logic; a simple diary will also usually be sufficient.
Armed with this figure you can claim a tax deduction of 66 cents for every kilometre, up to a limit of 5000km, that you’ve driven for work.
For more complex situations or if you drive a fair number of kilometres for business, it’s typically agreed upon that you’re better off keeping a log book. In it you note down the odometer reading and time at the start and end of every trip, as well as that journey's purpose.
According to the ATO’s rules, the log book must be kept for 12 consecutive weeks, although you can keep on logging if you so desire. The logging period is meant to be representative of your car’s overall use. If you have multiple vehicles, the log book period for each vehicle must be the same.
While keeping a log book sounds like a hassle, there's one great way to mitigate the pain: do it as soon as you can, preferably from the moment you pick up your new car.
Not only does this mean there’s no panic towards the end of the financial year, but getting it done early can lead to many years of log book-free bliss, as a vehicle’s log book can be valid for up to five years.
The percentage of your car’s kilometres that were driven for work equals the percentage of your car’s expenses which can be claimed as tax deduction.
The ATO allows you to estimate your on-going car costs based on your odometer readings, but it’s best if you keep a good track of your car-related expenses. Instead of spending hours combing through your credit card statements or searching for some long lost receipts, Platinum Direct Finance director Richard Kew has a few simple tips that anyone can employ.
The first is to keep an envelope in the glovebox where you can easily store any vehicle-related receipts until tax time. The second is, if you can, use a dedicated credit card for all the expenses for that car. That way, if any receipts are misplaced, they can be found easily.
Depending on your situation and financing arrangement, you may also be entitled to claim your car’s depreciation cost, up to the luxury car tax threshold. To make things simpler for yourself or your accountant, it’s a good idea to have a copy of your finance contract’s amortisation schedule close at hand.
During the 2015 Federal Budget, the government announced that it would allow sole traders and small businesses to amortise purchases, including cars, under $20,000 in one hit rather spread them out over a number of financial years. This tax break is planned to last until June 30, 2017.
Written in consultation with our finance partner Platinum Direct Finance.