You may be able to claim some tax deductions for a car you own when this vehicle is used as part of your work. The ATO provides guidelines on how you can claim these expenses, as well as the records you need to keep. This article is a summary of the key points to consider for your 2022-23 tax return.
What expenses can you claim for a car you own?
When you own a car and use it for business purposes, you can select one of these two ways to claim car expenses:
1. Cents per kilometre
This is a simple method to use and is best suited for when the use of your car for business is relatively low.
You can claim a set rate of 72 cents per kilometre for each business kilometre you travel. From 1 July 2023 the rate is increasing to 85 cents.
You may claim up to a maximum of 5,000 kilometres per year.
While the ATO does not require written evidence of your expenses, you will need to be able to show them the calculation you used to determine your business kilometres.
2. Logbook method:
The logbook method requires more effort and documentation; however, you may be able to get a higher tax deduction for your car expenses. This is best suited for when you use your car extensively for business purposes.
You need to keep receipts or invoices for all your car expenses, such as fuel, repairs, insurance, registration, interest on a car loan, and depreciation.
You will also need to complete a logbook that shows your odometer readings and the purpose of each trip for a minimum continuous period of 12 weeks.
The ATO provide a car expenses calculator to compare the two methods and estimate your deduction.
What records do you need to keep for your car?
Whichever method you chose, you will need to keep some form of documentation on file in the event of an ATO audit. These records need to be kept for up to 5 years.
1. Cents per kilometre
Records or evidence that shows how you calculated the business kilometers you travelled, or the percentage of business use.
2. Logbook method:
A logbook that accurately shows your odometer readings, as well as the purpose of each trip, for a minimum continuous period of 12 weeks. This logbook need to be completed every five years or sooner if your patterns of use for your business changes significantly.
Receipts or invoices for all your car expenses.
The ATO provides more details about the motor vehicle expense records you need to retain.
Do you need to claim deductions for a company car?
Watch this space. We’ll do another article addressing tax deductions for business vehicles and depreciation on vehicles.
Conclusion
Appropriately claiming car expenses should be part of your annual tax strategy and may also help you to improve cash flow as a small to medium business owner. Staying abreast of and complying with the rules and methods for claiming car expenses and keeping proper records of your car usage and expenses is critical.
If you are uncertain about the rules, or have questions about your tax strategy, speak with a tax accountant now. Don’t wait until tax time to ensure you have all the documentation that you need to make a claim!
How can ABA Advice Beyond Accounting help me with my car expenses claim?
The team at ABA has extensive expertise in business tax accounting, including supporting clients with car expenses claims. However, our service goes well beyond this. We work in close partnership with our business clients to implement effective taxation strategies, provide pro-active business advice and ultimately support business owners to improve their overall financial situation.
Don’t delay! Book your free Discovery Meeting with ABA today to learn how you can master your finances, reduce financial stress, and secure your financial future.