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Get the Highest Tax Deductions for your Business Vehicle Usage [while staying ATO-compliant]

The Australian Tax Office recently updated its guidance on tax deductions for business vehicle usage.

This article will discuss what you need to consider to get the biggest refund at tax time.

Use a motor vehicle for business purposes, whether for a company or trading as an individual or partnership. You may be able to claim certain expenses as a tax deduction. The methods you use to calculate your deduction may depend on your vehicle type. As always, your accountant or bookkeeper can assist with choosing the best options for your circumstances.

What the ATO considers business-related driving

Examples of travel that IS deductible:

Travelling between two different places of work
Meeting clients, visiting customers, attending sales appointments
Running errands for your business

Examples of situations that are NOT deductible:

Commuting from your home to a place of business
Carrying tools does not necessarily make a commute a business trip
Advertising displays on a car does not make driving it a business activity

For more specific cases, e.g. no fixed work address, home-based businesses, carpooling, and more, check out the ATO’s publication on work-related car expenses.

How to calculate your car expenses claim

You may deduct all vehicle-related expenses if your car is used solely for business purposes. For vehicles used for personal and business purposes, you can only deduct the cost of eligible vehicle usage.

In Australia, there are three methods of calculating your business-related vehicle expenses:

The cents per kilometre method
The logbook method
The actual costs method

Remember that the ATO requires you to keep records of any deductions you claim for five years; these records will ensure that you can provide evidence to support your deductions in case you are audited.

If you use the logbook or actual costs method, you can only claim the motor vehicle’s depreciation for the business-use portion. The maximum deduction you can claim for depreciation is $64,741 for the 2022–23 financial year or the cost of the vehicle (whichever is less). You may be eligible to claim the full business-use portion of the capital cost under the temporary full expensing rules.

The method you should use according to your employment situation

If your business is a company or trust, you must use the actual cost method, regardless of vehicle type.

If your business type is a sole trader or partnership, you have the following options:

If claiming for a car, you can use either the cents per km method or the logbook method;
If claiming for a motorcycle, a vehicle designed to carry a load of more than a tonne, or a vehicle designed to carry nine or more passengers, you must use the actual costs method.

The Cents per Kilometre method

The simplest way to calculate your work-related car expense deduction is the cents per kilometre method, which allows you to claim a per-kilometre deduction at a fixed rate.

The ATO sets the rate for each financial year, starting in July. The 2022/23 cents per km rate is $0.78. The rate is set to cover all costs of owning and operating your vehicle for business purposes. Using this method, you may claim up to 5,000 kilometres per financial year.

This method does not mandate written records to show precisely how many kilometres you have travelled. You must, however, be able to demonstrate how you have calculated the distance travelled (e.g. diary records.)

The logbook method

To calculate the amount you can claim with this method, you must keep ATO-compliant records. Careful: if you use a logbook app, ensure it is ATO-approved.

Your logbook must contain the following information:

The beginning and end date of the period
Odometer readings at the start & end of the period
The business-use percentage of your driving for the logbook period
Your car’s information – the make, model, engine size, and registration number

For every journey, you must record the following:

The date of the trip
The kilometres travelled
The odometer readings for the start & end of each trip
The description of the business reason for the journey, or whether it was private

Calculate your deduction by working out the percentage of business use of your car. For example, if 55% of your kilometres were for work-related driving, you’ll be able to claim 55% of that year’s car expenses. There is no limit to how many kilometres you may claim with the logbook method.

The actual expense method

The actual expense method of calculating your deduction is based on all receipts for business-related motor vehicle expenses and the business-related kilometres you’ve driven.

You may deduct the following costs:

Fuel and oil
Repairs and maintenance
Vehicle registration and insurance
Lease payments
Interest on vehicle loans

You can only claim business-related costs. If you use a vehicle for business and private purposes, you must keep detailed records to calculate the business-use percentage.

Tax compliance is notoriously challenging and complicated. We trust that this has made your options clearer and easier to understand and that you’ll reap the rewards when tax time rolls around.

At Namecorp, we specialise in simplifying the tedious details of running your business. That way, you can focus on impressing your customers and pursuing the Big Picture. Contact us today to see how we can make your life easier and your business more successful.

Disclaimer: All information provided on this webpage is general information about our business in Australia, and products and services. Nothing on this webpage is intended to be professional advice and should not be relied on as such. You should obtain specific financial, legal, or other professional advice before relying on the content of this webpage. By not seeking such advice, you accept the risk that the information on this webpage may not meet the specific needs of your business. Our liability is limited to the maximum extent permitted by applicable law in accordance with our website terms and conditions.