If you use your own car for work, claiming your car expenses might seem fairly straightforward. Keep track of your work kilometres, multiply them by the appropriate ATO rate and claim the result.
Unfortunately, there are a few traps along the way.
As the Tax Accountants Hobart taxpayers can turn to for advice, we know that the rules around work-related car expenses can sometimes cause confusion.
The Australian Taxation Office (ATO) recently highlighted five common misunderstandings involving the cents per kilometre method that can lead to mistakes when lodging a tax return.
Here are five things worth checking before making your claim.
1. Your trip to and from work usually doesn’t count
Driving from home to your normal workplace is generally considered private travel, even if you need your car to get to work.
There are limited exceptions. For example, you may be able to claim certain travel if you have to transport bulky tools or equipment that are essential for your work and there is no secure place to store them at your workplace.
Simply driving to work, however, doesn’t normally turn the trip into a work-related car expense.
2. The 5,000 kilometre limit isn’t an automatic deduction
This is an important one.
The cents per kilometre method allows you to claim up to 5,000 work-related kilometres per car each income year, but that doesn’t mean you can simply claim 5,000 kilometres without evidence.
You need records showing how you used the car for work and how you calculated the number of work-related kilometres you’re claiming. You must also be able to demonstrate that you own or lease the car, or have an appropriate private arrangement to use it.
You don’t necessarily need a traditional logbook when using the cents per kilometre method, but you do need to be able to support your calculations.
3. A novated lease is different from a personal lease
The type of lease you have matters.
If you personally lease the car, you may be able to claim eligible work-related car expenses using the cents per kilometre method.
A novated lease is different. This is generally a three-way arrangement between you, your employer and a finance or leasing company, where your employer makes the lease payments from your salary as part of a salary packaging arrangement.
Because a car provided through a novated lease isn’t owned or leased personally by the taxpayer, the ATO says they can’t claim the car expenses themselves.
Eligible work-related parking fees and tolls may still be deductible if your employer hasn’t reimbursed you for them.
4. The cents per kilometre rate already includes your car expenses
The cents per kilometre method is designed to simplify your claim by incorporating the costs of using the vehicle.
That includes expenses such as fuel, registration, insurance, maintenance and repairs, as well as the vehicle’s decline in value.
So you can’t use the cents per kilometre method and then add those individual expenses to your deduction as well.
If you’re using the logbook method, the calculation works differently and decline in value may form part of your claim.
5. You can’t change methods halfway through the year
You can choose between the cents per kilometre method and the logbook method when you’re eligible to use them, but you can’t switch between the two during the same income year simply to maximise your deduction.
Whichever method you choose applies for the full income year.
If you’re unsure which method may be appropriate, keeping good records throughout the year is a sensible idea. It gives you and your accountant the information needed to consider your options when it’s time to prepare your return.
Good records can make tax time much easier
Work-related car expenses can add up, but so can mistakes when the rules aren’t properly understood.
Keep records of your work-related trips and don’t assume that every kilometre travelled for something connected with your job is automatically deductible.
And if you’re unsure about what you can claim, talk to Hills Accounting in Hobart before lodging your return. We’d much rather help you get the calculation right in the first place than have you discover later that the ATO sees those kilometres rather differently.
Remember, this article is general in nature and doesn’t take into account your specific objectives, financial situation, or needs.
For advice tailored to your circumstances, have a chat with us at Hills Accounting Hobart.
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