There are currently two methods an individual can use when claiming deductions for the work related expenses for the car they own. These are either:
• The cents per kilometre method or
• The log book method.
Cents Per Km Method
- A maximum of 5,000 business kilometres can be claimed using this method
- Quite a popular method because there is not much of a substantiation requirement by the ATO as long as you can show how you worked out the work related kilometres
- You can claim 68 cents per KM for the 2019-2020 Financial Year. This will increase to 72 cents from 1st July 2020
- The taxpayer needs to bear in mind the term “business kilometres” so the cost of trips between home and work is not allowed however under specific circumstances such as having shifting places of work(Iterant worker) this may be accepted
Log Book Method
- Requires you to use a Logbook for a minimum of 12 continuous weeks. The good news is that the logbook is valid for five years. The ATO have their methods of easily detecting an invalid Logbook.
- Expenses you can claim include running costs such as Fuel, Toll, Rego, Insurance and Repairs
- You can’t claim the Purchase price of the car but you can Depreciate the value of the car
- The business percentage is calculated by your business kilometres divide by the total kilometres travelled. You can keep an electronic logbook by using the myDeductions tool in the ATO app for free, subscribing to Quickbooks Self Employed where you can track your kilometres, send invoices and keep tabs on all your expenses which is currently being charged at a special discounted rate of $7.50 a month or you can just keep a paper logbook.
So which method is better?
Example: A sales rep travels from one place to another over the financial year. Total motor vehicle costs add up to $10,000 for the year. Because she kept a logbook her work related travel amounted to 65%. So 65% of $10,000= $6,500 can be claimed in her return! If she did not keep a logbook she would only be able to claim $3,400 ( 5000km * 0.68 cents) under the cents per KM method. So it may seem like a cumbersome task to keep a logbook as you can see from the the results above it may be worth it.
If you are unsure about which method to use or how the rules apply to your circumstances give our tax specialists a call on 02- 9749 5523.
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