Car allowance tax guide

Saving money at tax time is something that everyone wants to do. If you have work-related car expenses, then you might be able to deduct work-related car expenses under certain circumstances. Let’s explore when and how you can deduct your vehicle expenses at tax time.

Here are a few examples of times when you might be able to deduct your car expense when using it for business.

• Hauling tools and equipment used for your job.
• Pick-up and delivery of items for your employer.
• Travelling between two different places of employment.
• Your work begins at home and involves various sites.
• Travel for meetings, conferences, and other work-related events.
• Travel to your workplace, but only under certain circumstances.

How do I track & claim my car-related expenses?

The Australian government allows two different methods for claiming the car allowance tax deduction. When claiming car expenses, you can use either method. Here is a break down of how they work.

Cents per kilometre method

Using this method, you can deduct a set rate for each kilometre that you travel for business-related activities. If you use this method, you must demonstrate that you used the kilometres claimed for work. A simple logbook that includes the miles travelled is sufficient. Let’s take a look at an example.

Jim is a manager for the construction industry. He uses his personal car to deliver and drop off supplies to a remote worksite that is 7km away. The round trip is 14 km to and from the home office. He does this once a week, every week of the year except for two weeks of vacation. The current allowable rate is $0.68/kilometre.

• 14km per week X 50 weeks = 700 kilometres that can be claimed
• 700 allowable kilometres X $0.68 = $47.60 that can be deducted

Pros

• Easy to calculate using a simple formula.
• Computed using a standard rate set by the government.
• Suitable for people who use their car less than the maximum allowable kilometres.
• Record keeping is simple for this method.

Cons

• Limited to 5,000 kilometres per vehicle per year.
• Cannot claim separate vehicle expenses.

Logbook method

This method requires more record keeping of motor vehicle expenses. Still, if you use your personal vehicle for work frequently, it can add up to a more significant deduction. Let’s see an example.

Now, let’s say Jim uses his own vehicle for 1,000 km during the 12 week period when he tracked vehicle mileage in his logbook. Let’s also say that Jim kept records of fuel, repairs, service, insurance, and took depreciation on his new vehicle. The current deduction rate using the logbook method is 85%.

• 1,000 km X 0.85 = $85
• $8,430 of vehicle expenses X 0.85 = $7,165.50
• $7,165.50 + $85 = $7,250.50 deductible expenses

Pros

• Only have to keep a motor vehicle logbook for 12 consecutive weeks.
• You only need to complete the logbook once every five years.
• More detailed record keeping.
• Can deduct expenses such as registration, fuel, service, insurance, etc.
• Based on a percentage of all costs.
• An excellent choice for those who exceed the 5,000 km limit for the cents per km method.

Cons

• You must own the car.
• Must record all business and all personal trips.
• Must keep all receipt for related expenses.
• More restrictions apply to this deduction method.

What car-related costs can’t I claim on my taxes?

Both vehicle expense deduction methods have different rules that apply to when you can and cannot take the deduction. Here are a few examples that might apply to your circumstances.

• Travelling from home to your regular place of employment.
• Car expenses that are reimbursed or are included as part of a salary package.
• Picking up something for your employer on your way to your regular work location.
• Fuel when using the cents per km method.
• An employee is driving your personal car for work.
• You are working overtime, and public transportation is not available.
• You have to drive back to work for after-hours calls.

What about owned or leased cars?

You can deduct expenses from a car that you own, lease, or is under a lease-to-own agreement. This can be claimed using either the logbook or cents per km method. In some cases, you might be able to claim the car tax deduction for vehicles, such as motorcycles, passenger vans, or trucks fitted to haul equipment.

How to hire a tax accountant

Sometimes, deciding how the rules for the car tax deduction apply to you can be tricky. Hiring a tax accountant can help you take the maximum allowable deduction for your circumstances and help you to avoid any penalties for claiming something that is not allowed. Here are a few tips for hiring a tax accountant.

How to create an accurate estimate

To claim your tax deduction and get the proper credit for your circumstances, you need to do a few things to help your tax professional:

• Keep all vehicle-related receipts.
• Print out all electronic receipts.
• Place all of your receipts in a file.
• Keep your logbook with you at all times.
• Place your logbook in a place where you will see it.

Licencing & qualifications

Hiring a tax professional is an important decision. You must choose carefully because utilising the wrong one can land you in trouble. Here are some of the requirements needed to become a tax accountant.

• Must have a Bachelor’s degree in accounting.
• Must participate in the Certified Practising Accountants (CPA) program or be a member of the Institute of Public Accountants or Chartered Accountants Australia.
• Be sure to ask how long they have been a tax accountant and their experience with similar tax circumstances.

How to save money hiring a tax accountant

Tax accountants use different methods of charging for services. Some charge a flat fee, while others work on a percentage basis. Here are a few tips for saving money when hiring a tax professional.

• Ask what they charge and how they charge upfront.
• Save your receipts, or you cannot deduct all of your eligible expenses.
• Keep your records in the proper order to save your preparer time.

FAQs

Can you claim fuel on tax?

Claiming fuel on tax is only allowed if you choose the logbook tax method. A matching receipt must accompany a fuel claim, and you must keep a travel logbook for tax purposes. You can only claim a portion of your fuel expense that was used for work purposes. You cannot claim this deduction if you use the cents per km tax deduction method.