Can I claim a tax deduction for my car?
In this post we’ll take a look at everything, well, almost everything, that you need to know about claiming a tax deduction for your car. We’re going to assume here the car is in your name and not that of a company, but many of the same principles will apply.
The basic condition for claiming a tax deduction for costs associated with your car is that the car needs to be used for work-related travel. What is work-related travel? I’ll include trips like:
Going from the office to a client,
Popping out to collect the mail or buy supplies for the office,
Going from one place of employment to another,
Trips to and from home carrying bulky tools/equipment that are job-required and can’t be left at work,
Attending a conference, seminar or any other kind of training event, and
Going from a clients office back to your home.
As you’ll see above there is a bit of travel in the car you can claim, but the main thing you can’t claim is travel between home and the office as this is considered private in nature and therefore not deductible.
There are two ways of taking the travel and turning it into a tax deduction and these are:
Logbook method. This requires that you keep a logbook for 12 weeks that shows how much you use the car for work-related travel and how much for private travel. Once you’ve got your percentage (work travel / total travel) for that period you can use that percentage to calculate how much of your car expenses you can claim. The logbook is valid for five years and only needs to be redone earlier if the way you use the car changes significantly in that period (e.g. you drove a lot for work, now you don’t). There are apps you can use to handle the logbook, or you can grab a trusty paper one from a newsagent.
Cents-per-km method. A tried and true favourite, this method allows you to claim a set amount per work-related kilometre you travelled in the year. The rate is currently $0.72 per kilometre up to a maximum of 5,000 work-related kilometres.
If you’re going to use the cents-per-km method you don’t really need to keep any records, you just need to be able to justify and explain the kilometres you’ve claimed. For example if you visit clients roughly three times a week with an average trip of 20km and you worked 48 weeks in a year you could claim 2,880kms under this method.
However, if you’re going to use the logbook method you’ll need to not only have the logbook handy, but you’ll also need all of your receipts and proof of payment. Here are the sorts of expenses you can claim in relation to your car:
Fuel and oil,
Depreciation on the car,
Repairs & maintenance,
You'll note I've not included tolls or parking in that list. These things aren't part of your motor vehicle deduction, rather they are considered a travel cost and are only deductible for work-specific journeys.
To summarise, if you’re using your car for work-related travel then you’ve got two options when it comes time to claim a tax deduction. You can use the cents-per-km method which is easy, requires minimal paperwork and can be a great option if you don’t spend a lot on your car. Alternatively you can use the logbook method which is more work, but if you’re spending a lot on the car it can work out better from a financial perspective as the deduction you end up with will likely be higher meaning less tax to pay each year.
If you’ve got better things to do than worry about your tax return you can outsource the hassle to us. It’s said that money can’t buy you happiness, but it can buy you time. Get in touch today, we’d love to help.