It's important to understand exactly what you can and can't claim at tax time, and a common deduction is expenses related to your vehicle. Working out what qualifies can be confusing, but it will be a benefit to you to claim any car-related expenses that qualify as deductions.
This guide will help you learn what options you have and what you’re able to claim, and not claim, when it comes to car-related expenses.
You can get an overview of the types of claims you may be able to make below:
Tax deductions for employees
Under Australian tax law, you’re able to claim any employment-related car expenses if you incur them while using your own vehicle to perform your job as an employee. You can incur work-related car expenses by doing any of the following:
Loading/unloading tools and other equipment that are required to complete your job.
Picking up or dropping off delivery items on behalf of your employer.
Travelling to and from two different workplaces (for example between a full-time and part-time job).
Travelling in order to perform itinerant work.
Travelling to business meetings, conferences, or other events required by your employer.
Travelling from your home to an alternative workplace (not your main workplace) and then back to your main workplace or back home at the end of the day.
How do I track my car costs?
There are two main ways to claim your car-related expenses: the log book and cents-per-kilometre.
Method 1: The logbook
There are several things to keep in mind when using the logbook method for recording your business-related car expenses:
Under this method, the claim you make is based on the business-use percentage of your car-related expenses. You determine your business-use percentage by keeping track of your expenses for a minimum of 12 weeks (and updated every five years) in a log book.
In this log book, you’re required to log all business journeys made in your car during the set time period. You’ll need to record the following general information:
The period that the log book begins and ends
The vehicle’s odometer readings at the beginning as well as at the end of this period
Total kilometres driven during the period
The business-use percentage for the period
Each individual journey recorded in your log book must have the following information:
Start and finish times
Starting and ending odometer readings
Total kilometres travelled
Business reason for the journey
You can claim all operating expenses for your car at the business-use percentage you’ve initially set in your log book.
Make sure to keep all receipts gathered throughout the year to justify your claims, including receipts for things like servicing and repairs.
Depreciation is calculated as one-quarter, or 25%, of the recorded value for your vehicle.
Method 2: Cents per kilometre
The second method you can use to claim car-related expenses is the cents-per-kilometre method. This method is outlined as follows:
Your claim is based on a fixed rate for each business kilometre you travel. You’re able to claim up to 5,000 kilometres per year under this method.
The claim is calculated by multiplying the total business-related kilometres you travel (max of 5,000 km) by the standard fixed rate of 66 cents per kilometre. This amount represents all depreciation and other vehicle expenses.
Although you don’t need written evidence for this method, you’ll need to demonstrate that you’ve incurred the expenses you’ve claimed. Diary records of the particular business journeys you’ve made are sufficient.
What expenses can’t I claim?
You can’t claim the drive to and from your home and your main workplace. This is considered “private” use, even if:
You’re completing small tasks required by your employer on the way to work (for example, picking up the mail or other deliverables for your employer).
You’re driving back to work for things such as security calls or even parent-teacher interviews if you’re employed in an educational organisation.
You’re working overtime and there’s no public transport for you to get home.
Tax deductions for sole traders and business owners
Besides claiming your car-related expenses (like fuel and running costs), you’re also able to take advantage of the following options to reduce your taxes:
Interest on a car loan
Lease payments
Insurance premiums
Registration costs
Depreciation
If you use the same vehicle for business and private use, you must be able to separate and justify which usage and costs you are claiming for each. This can be done by using a logbook or diary to keep track of your trips.
Small businesses that make less than $10 million a year can also currently immediately deduct the cost of a business asset costing less than $20,000.
What type of business car loans allow you to make tax deductions?
Business car loan
With a regular secured business car loan you can claim the interest paid on the loan as a tax deduction.
The biggest benefit of a chattel mortgage is the tax incentive that comes with it. You’re able to claim the GST you paid when buying your vehicle as an Input Tax Credit. This will help you a lot come tax time.
On top of this, you’re able to deduct both interest charges and the vehicle’s depreciation.
Novated lease
You can finance the purchase of a vehicle while still taking full advantage of tax benefits by using a novated lease. This type of financing involves an agreement between you, your employer and a third-party lender. You take out a lease on the vehicle you plan to purchase, and your employer then makes the lease repayments by deducting the operating costs from your pre-tax income.
Not only does this option give you a simple way to finance a vehicle and manage your payments, it also gives you an added tax benefit because you can take advantage of a lower tax rate. Since your payments are coming from your pre-tax income, your taxable income is decreased.
When it comes to motor vehicle expenses, make sure you know exactly what tax-incentivised options are available as well as what you’re able to claim as deductions. Make sure you get the most out of this tax season by taking advantage of all your options.
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Elizabeth Barry is the lead editor for Finder. She has over 10 years' experience writing about a range of topics with a focus on personal finance. You’ll find her writing and commentary in a range of publications and media including Seven News, the ABC, MSN, the Irish Times and Singapore Business Review.
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I’m an employee carpenter and I want to buy a second hand car for 38k. I use my car only for work as it has tools in it at all times and I don’t take it elsewhere to protect them from thieves. What is the best way to finance this car and claim it on tax. I pay roughly 25k in tax each year. I do have a line of credit and can access that if neede.
Finder features a number of used car loan options that you may check and compare in order to find the right one for you.
Claiming the expense of buying a vehicle as a tax deduction varies greatly depending on which vehicle finance option you choose. For example, a chattel mortgage will allow you to claim interest charges and the depreciation on the vehicle as a tax deduction, while under a finance lease you can claim a deduction for the whole of the lease.
It would be best to chat with an accountant before you apply as there are a number of car financing options available to businesses and an accountant can help you decide which one may work best. Accountants can also tell you which part of the finance is tax-deductible to help inform your decision.
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I’m an employee carpenter and I want to buy a second hand car for 38k. I use my car only for work as it has tools in it at all times and I don’t take it elsewhere to protect them from thieves. What is the best way to finance this car and claim it on tax. I pay roughly 25k in tax each year. I do have a line of credit and can access that if neede.
Hi Whitey,
Thanks for your inquiry.
Finder features a number of used car loan options that you may check and compare in order to find the right one for you.
Claiming the expense of buying a vehicle as a tax deduction varies greatly depending on which vehicle finance option you choose. For example, a chattel mortgage will allow you to claim interest charges and the depreciation on the vehicle as a tax deduction, while under a finance lease you can claim a deduction for the whole of the lease.
It would be best to chat with an accountant before you apply as there are a number of car financing options available to businesses and an accountant can help you decide which one may work best. Accountants can also tell you which part of the finance is tax-deductible to help inform your decision.
Hope this information helps
Cheers,
Arnold