Many occupations require employees to travel between different locations for their job in a car – an act that will often incur an expense. This could be in the form of petrol, parking, wear and tear on a car or insurance.
Over the course of a year, these costs can add up, especially if you’re working five days a week. This is especially true if you’re required to constantly travel around in a car for your job.
Thankfully, the ATO recognises these costs and allows employees to claim them as a tax deduction in your tax return. This means that workers are able to claim the costs of traveling to and from work back from the amount of tax that they are legally required to pay.
There are some strict guidelines that must be followed in order to claim back work related car expenses. In this article, we break down the basics of what you can and can’t claim in regard to car expenses.
What car expenses can you claim?
The ATO defines the following points as work related car expenses that you can claim as a deduction on your tax return if you use your own car to:
- Perform your work duties, for example, if you travel from your regular place of work to meet with a client
- Attend work-related conferences or meetings away from your regular place of work
- Deliver items or collect supplies
- Travel between two separate places of employment, but not if one of the places is your home (for example, when you have a second job)
- Travel from your regular place of work to an alternative place of work (that isn’t a regular place of work) and back to your regular place of work or home
- Travel from your regular place of work or your home to an alternative place of work that is not a regular place of work (for example, a client’s premises)
The ATO doesn’t allow deductions for travel between your home and place of work, unless it falls under the following categories:
- Your home is a base of employment – that is, you employer requires you to start your work at home and later travel to a workplace to continue work
- You had shifting places of employment – that is, you have no fixed place of work and you continually travel from one work site to another
- You carry bulky tools or equipment for work and all of the following apply:
- the tools or equipment are essential to perform your employment duties and you don’t carry them merely as a matter of choice
- the tools or equipment are bulky – meaning that because of their size and weight they are awkward to transport and can only be transported conveniently by the use of a motor vehicle
- there is no secure storage for such items at the workplace
If you are driving a company car (or someone else’s car) for the above purposes, you can claim a deduction; however you’ll need to approach the claim in a different way to how you would if it was your own car.
Using your own car
If your car use fits the above categories, then you’re able to claim deductions for the following things:
- Fuel and oil
- Compulsory Third Party insurance
- Decline in value
If your vehicle isn’t used solely for work purposes, then these expenses much be proportioned to account for personal use.
Using a company car, or someone else’s car
If you don’t own the car you’re using, then some work related car expense claim methods will not apply for you. Generally, you cannot use the logbook method or cents per kilometre method (these of which are explained below), however you may be able to claim actual car expenses incurred by yourself (for example, fuel that you paid for).
The exception to this is the car is owned by someone else like a friend or family member and you have a loan agreement with them in relation to the vehicle. If this is the case, the logbook or cents per kilometres methods may be used.
This can be a complicated scenario, so we advise to talk to an Accountant to seek professional advice if you are using a car that is not your own.
How much can you claim as a deduction on your tax return?
When claiming car expenses that are regarding a vehicle that you own, there are two ways to record the costs.
Method one: cents per kilometre
The cents per kilometre method involves keeping a record of the distance traveled specifically for work purposes and claiming an amount back per kilometre. The current rate for the 2021 financial year is 72 cents per kilometre.
This method allows for a maximum amount of 5,000kms to be traveled during that financial year. So, the maximum amount that can be claimed for the last financial year is $3,600.
Working out the amount you’re eligible to claim is quite simple. You should add up the number of kilometres covered over the calendar year that you’ve noted down, and then multiply that amount by the rate for the financial year that you’re lodging taxes for.
This method does not require receipts, but it is necessary for you to keep a diary of the distance traveled, when it took place and where you were going. You’ll also need to note down the odometer reading.
This method covers all car expenses for the vehicle. If you use this method, you’re not able to claim separate car related expenses, like the cost of petrol or registration.
Method two: logbook method
The logbook method is popularly used when the car is used for both personal and business reasons. This method allows tax payers to record costs that were incurred over the financial year, and then deduct a percentage to allow for the time the vehicle was used for personal use.
For example, if a car was used 60% of the time for business reasons, and 40% of the time for personal reasons, then the total costs recorded that would be an eligible tax deduction would be reduced to 60%. This amount would be eligible to be deducted as it’s the business percentage of the time that the car was used.
The logbook must be kept for a period of a minimum of a consecutive 12 weeks, and the following points must be noted in the logbook for each (business and non-business) related journey:
- 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
The following points must also be noted in the logbook for the period that the logbook is recording:
- start and finish dates for the logbook period
- start and finish odometer readings for the logbook period
- total number of kilometres traveled during the period
- business use percentage for the period
To calculate the amount that you can claim using the logbook method, you’ll need to calculate the entire number of kilometres traveled over the period of the logbook. Next, you should calculate the number of kilometres that were traveled for work-related trips that fit the above claimable categories. Then, you can divide the total amount of kilometres traveled by the business amount of kilometres traveled, and times this figure by 100. This will give you the percentage of the amount of distance that you’re car was used for work-related reasons.
Once you have this figure you can calculate your total car expense over the period and calculate the percentage of what costs were business related.
For example, Mark spent $8,567 on car related expenses over a 20 week period (including petrol, repair, registration and compulsory third party insurance) and he calculated the business use of the car 63%. He would then calculate 63% of $8,576 as $5397.21. $5397,21 is the amount he would be eligible to claim as a tax deduction as part of the logbook method.
Generally, unless you change your vehicle, you only need to record a logbook once every five years. You can then use the calculated percentage for your motor vehicle deductions for the next five years.
What car expenses can you not claim?
- You cannot claim car expenses for the distance traveled between your own home and your place of work (unless they fall under the above-mentioned exceptions). Further, you can’t claim car expenses if your company already reimbursed you for the cost of the travel.
Is parking considered a car expense?
No – car parking is not considered a car expense; however, it’s still possible to claim the cost of parking as a deduction (if the requirements are met). These costs are considered a work-related travel expenses, not a car expense, and must be input into your tax return in a different section.
I traveled in more than one car, do I need to use the same method for both?
No. If you traveled for work in two different vehicles that you own, and the terms of travel fit the above criteria, then you can claim on both cars, and use different methods for claiming. For example, if you travelled briefly in one car, you may want to use the more simple method (cents per kilometre). For the car that you spent a significant amount of time traveling for business reasons, you may want to consider keeping a logbook and claiming the deductions with that method for that car.
If I use my car solely for business reasons, can I claim the cost of it as a car expense?
No. Car expenses only cover running costs and decline in value, not the cost of capital. There may be some exceptions to this, depending on the current ‘instant asset write-off’ rules. An Accountant will be able to assist you with this!
If I have an accident while on a business trip, can I claim repairs costs as a deduction?
In a situation where the accident causes damage to a third party vehicle, you may be able to claim a deduction. Depending on the specific situation you may be able to claim a deduction to cover the costs you incur to repair your vehicle and for damages or compensation for the damage to the other vehicle if you are liable.