Using your car often for work? Not sure which method to choose to claim your work-related car expenses? and what records to keep?
First and foremost, you need to know the scenarios where you are NOT entitled to claim your car expenses:
- your employer reimburses you for work use of your car;
- the car is provided/owned by your employer under a salary packaging arrangement except for expenses paid out of your own pocket;
- driving to and from work is classified as a private expense unless one of the following exceptions apply:
- Travel to earn your income
- You have to transport bulky tools and equipment to work by car
- Your work is itinerant
- Home is your base of employment
(above exceptions are explained in detail in the article Can I claim home to work travel expense?
Next, the cents per km and logbook method only apply to a “car” which is defined as a motor vehicle designed to carry both:
- a load of less than 1 tonne and
- fewer than nine passengers.
Other vehicles include:
- vehicles designed to carry either
- one tonne or more (such as a utility truck or panel van)
- nine passengers or more (such as a minivan).
So you need to determine if your vehicle is a car or not. If it is a car, then you can choose between the cents per km method and the logbook method to claim your work-related car expenses; whereas if it is not a car, you must use the actual costs method which is based on all the receipts for work/business-related travels.
If you use someone else’s car for work, you may be able to claim direct costs, such as fuel and car parking fees, to the extent that they relate to your work use of the car.
Now if you do own a vehicle that can be classified as a car for tax purposes, you may choose either cents per km or logbook method to claim your work-related car expenses.
Cents per km method – 5,000 km or less
- this method uses a set rate for each kilometre travelled for work/business. The rate is 72 cents per km for 2020/21 and 2021/22 income years. This rate has taken into account all your car running expenses (including registration, fuel, maintenance and insurance) and depreciation as well.
- total claim under this method is limited to 5,000 kilometres per car, per year, which gives you a maximum claim of $3,600 (5,000 x $0.72). Where a car is owned jointly, each owner can claim up to 5,000 work-related kilometres in respect of the car.
- you are not required to keep written evidence to show exactly how many kilometres you travelled, but the ATO may ask you to show how you worked out your work kilometres claimed. A diary of work trips should suffice.
This method is a bit complex and requires meticulous record-keeping, but if you drive a lot or over 5,000 km for work it can result in a greater claim for you.
In essence, your work-related car expenses under the logbook method is calculated as:
Total car expenses for the relevant income year x work/business percentage
Car expenses that you can claim here include:
- fuel and oil
- repairs and maintenance
- loan interest if the car is financed
- lease payments if leased
- registration & CTP
- depreciation (decline in value)
Note that parking and tolls are claimed separately under the travel expense category rather than car expenses.
You need to keep substantiation records for all of the car expenses you incur except for petrol. Substantiation records for petrol and oil costs can be kept, but not compulsory as they can be estimated based on the odometer readings and the average price of petrol.
Work/business percentage is worked out by keeping a 12 continuous week logbook.
The 12-week window you pick should represent the typical pattern of your car use. A too slow or busy period will understate or overstate your claim.
The logbook should record details of each trip (work or private) for the chosen period so that a representative work percentage can be calculated:
( Distance travelled in work-related trips / Total distance travelled )x 100%
Your logbook must include the following information:
- The start and end date of your logbook period
- Exact odometer readings at the beginning and end of the logbook period
- Total number of kilometres travelled during the logbook period
- The details of your car (make, model, rego plate, engine capacity)
Every work-related trip must show:
- the day the trip began and ended
- the car’s odometer reading at the start and end of the trip
- how many kilometres the car travelled
- The specific reason for the trip
Remember, driving to and from work is not classified as work-related, therefore should be categorized as private trips in the logbook.
You can request a free logbook template from us by email email@example.com
If you are comfortable with using a smartphone, the ATO App, which includes a logbook function under the myDeductions section, is a great way to keep a logbook and other records.
In addition to a valid logbook, you must also keep records of opening (1 July) and closing (30 June) odometer readings for each income year.
One logbook can be used for up to five years as long as your circumstances don’t change significantly. You must retain your logbook and odometer records until the end of the latest income year in which you rely on them to support your claim and then for another five years after that.
If your pattern of use changes before the five years are up, you may start a new logbook.
How to decide which method to use?
Both methods have their pros and cons. To decide which one is best you need to consider your own individual circumstance. Here are a number of indicators to help you decide:
If you still can’t decide which method is the best option for you, you may want to speak to your tax accountant or contact us for a professional assessment.
Please note that this article is intended to be a general guide only, and should not be seen to constitute legal or tax advice. Where necessary, you should seek a second professional opinion for any legal or tax issues raised in your personal or business tax affairs.