If you use your own car for work purposes, you could be eligible to claim a tax deduction for car expenses, whether you own your car outright, are leasing it or paying it off.
The Australian Taxation Office explains that you can claim a deduction for car expenses if you use your car to:
- Perform your work duties
- Attend work related conferences or meetings away from your normal workplace
- Travel directly between two separate places of employment if neither of the places is your home
- Travel from your normal workplace to an alternative workplace and back to normal workplace
- Travel from your home to an alternative workplace and then to your normal workplace.
- Perform itinerant work – meeting you have shifting places of employment.
However, you can’t claim a deduction for the cost of trips between home and work, even if you live a long way from your usual workplace or work outside normal business hours.
Costs you can claim:
- petrol and oil,
- servicing and repair costs,
- car insurance,
- the cost of any damage you cause to another vehicle in an accident,
- interest on your car loan (if you have one),
- lease payments (if you are leasing your vehicle), and
- depreciation (its decline in value over time).
In addition, if you run a business, you can claim the above costs for any vehicles you provide to your staff as part of their employment.
Costs you cannot claim:
- the purchase price of your car unless you are running a business and you claim a deduction under the instant asset write-off scheme,
- any car expenses that you have salary sacrificed,
- any car expenses that have been reimbursed to you by your employer, and
- the cost of any private (i.e. non work-related) travel that you may do in your vehicle.
If you use your car for both private and work purposes, you can only claim the work portion of your car expenses as a tax deduction. For example, 50%.
It is important to understand that you must be able to justify how you have calculated the percentage of work use that you claim in case you are ever audited by the Australian Taxation Office (ATO). You can do this by recording your kilometres travelled and the associated work purposes in a logbook.
Can I claim parking fees as a tax deduction?
Yes, work-related parking fees are tax deductible.
However, you don’t claim them as a car expense on your tax return. You claim them as a work-related travel expense instead.
You also claim work-related bridge and road tolls as a travel expense rather than a car expense on your tax return.
Can I claim a tax deduction for driving to and from work?
No, this is regarded as a private expense except in special circumstances such as:
- if you run a home-based business and you travel for work-related purposes,
- if you are travelling between two workplaces, or
- if you are required to carry tools or equipment that cannot be stored at your workplace. For example, if you are a tradesman.
How do I calculate my tax-deductible car expenses?
There are two methods you can use:
- the ‘cents per kilometre’ method, or
- the logbook method.
Cents per kilometre method
The cents per kilometre method applies a flat deduction rate per kilometre up to a maximum of 5,000 kilometres.
The rate for the 2019/20 financial year is 68 cents.
For example: If you have travelled for 4,000 kilometres in the past financial year for work purposes, you would be eligible for a tax-deductible car expense of $2,720 (i.e. 4,000 x 68 cents).
You will need to be able to demonstrate how you have calculated the kilometres you claim if you are ever audited by the ATO (for example, by keeping a logbook that records your work use of your vehicle).
The cents per kilometre rate will rise to 72 cents for the 2020/21 financial year.
The logbook method is the one you should use if you are going to claim car expenses for more than 5,000 kilometres of business travel in any financial year.
The logbook method requires you to:
- keep records of your travel for a continuous period of least 12 weeks, noting the odometer (speedo) readings, as well as the purpose of your travel (i.e. work-related or private).
- use this information to determine your percentage of work-related car use. You can use this information to determine an appropriate percentage of your car expenses to deduct.
For example: If you travelled for 10,000 kilometres in your vehicle in the last financial year and your log book reveals that 50% of your travel was for work-related purposes, you would be eligible to deduct 50% of your eligible car expenses.
If your total car expenses were $5,000, you would be able to claim $2,500 as a tax-deductible car expense (i.e. 50% of $2,500). As these examples show the log book method may not always give you the highest deductions so it is worth reviewing the method used to ensure you maximise your allowable claim.
Travel to Inspect Your Investment Property
From 1 July 2017, travel expenses relating to your investment in residential rental property are generally not deductible.
Similarly, these costs are not added to the property cost base of the property for CGT purposes, so they are lost forever.
These costs include the costs of travel, accommodation and meals to inspect, maintain or collect rent for the property.
There are some exemptions for the related costs of distant and overnight travel, and these must be individually reviewed.
You are allowed to deduct travel expenses relating to your residential rental property if:
- you are using the property in carrying on a business (including a business of letting rental properties), or
- you are an excluded entity.
What records do I need to keep to claim car tax deductions?
You need to keep:
- records of your actual motor vehicle expenses, and
- a logbook that itemises your work-related trips if you use your vehicle for both private and work purposes.
You need to keep these records for at least five years after you submit your tax return in case you are ever audited by the ATO.
Note: This is a general summary only – you can get more information from the ATO here or form a registered tax professional
Ken Raiss is director of Metropole Wealth Advisory and gives independent expert advice for property investors, professionals and business owners. He is passionate about real estate investing and small business and is a regular commentator for Michael Yardney's Property Update.
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Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.