Rate change for work-related car expense deductions
The Australian Taxation Office (ATO) has determined that the rate for work-related car expenses for the income year commencing 1 July 2018 is 68 cents per kilometre.
If you are working out your car expenses for the 2015–16 year, 2016–17 year and the 2017–18 year, the previous rate of 66 cents per kilometres applies.
What you can claim
You are entitled to claim the costs of using your car if you use your car for work purposes. There are two ways to calculate your car expense claims: the logbook method, or the cents per kilometre method.
Cents per kilometre method
Your claim is based on a set rate for each business kilometre you travel ($0.68 for the 2018-2019 financial year) and is limited to 5,000 kilometres. No written evidence is required, however, you must be able to reasonably show how you came up with the number of work-related kilometres.
The ATO can ask you to explain how you calculated your claim and how the use of your car was work related.
Remember the three golden rules to make sure you get your claim right:
- You have to have spent the money yourself and haven’t been reimbursed by your employer.
- The claim must be directly related to earning your income.
- You need to be able to prove that the expense was incurred.
Log Book Method
If you travel more than 5,000 kilometres per financial year for work, and intend to claim car expenses, the ATO requires you keep a logbook to support that claim.
Using the logbook method, your tax deduction claim is based on your car’s “business use percentage”. To work out your business use percentage, you need to keep a logbook for your car for a “typical” 12-week period. These must be 12 consecutive weeks
Your logbook must include every trip you take – not just your business-related trips. The logbook must include the following details:
- date for each journey
- start and finish times for each journey
- start and finish odometer readings for each journey
- total number of kilometres for each journey
- reason for each journey
- start and finish dates for the logbook period
- start and finish odometer readings for the logbook period
- total number of kilometres travelled during the period
- business use percentage for the period
Keep receipts for all expenses related to your car, including:
- interest on loan costs
- other running costs
FBT and logbook requirements
If you use the Operating Cost Method to calculate Fringe Benefits Tax (FBT) on motor vehicle usage, you will need to maintain a valid logbook recording your usage of the vehicle over a 12-week sample period. Failure to do so, may result in the entire use of the vehicle being subject to FBT.
The requirements for maintaining a log book for income tax and FBT purposes are the same except that a FBT logbook applies to the relevant FBT year while an income tax logbook applies to the relevant income year.
Work-related car expenses are in the ATO’s sights
The Australian Taxation Office (ATO) has recently announced that they are closely examining claims for work-related car expenses during this upcoming lodgement period. Additional audit resources will be employed along with updated data analytics to scrutinise large car expense claims.
Kath Anderson, ATO Assistant Commissioner, warns tax payers about the importance of getting your claim right.
“It’s legitimate to claim for 5,000 kilometres if you did actually do them as part of earning your income. However, we are concerned that some taxpayers mistakenly believe that this is a ‘standard’ deduction they are entitled to, without needing to provide any evidence of having travelled that distance, or even having undertaken any travel at all.”
The ATO has also announced that this year they will be paying close attention to claims for ‘other’ work-related expenses such as home offices, union fees, mobile phone and internet, laundry claims and tools and equipment.
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