Vehicles, Expenses & The Tax Return

Making the most of available tax deductions for your business can be an important aspect of starting the new financial year. It’s why planning and strategising with your tax advisor could lead to different and new perspectives regarding tax in areas of your business.

One area where you can significantly benefit is through claiming motor vehicle expenses.

Here’s how to navigate the process and ensure you claim the maximum allowable deductions.

What Can You Claim?

As a business owner, you can claim a tax deduction for several business-related motor vehicle expenses. These include:

  • Fuel and oil
  • Repairs and servicing
  • Interest on the motor vehicle loan
  • Lease payments
  • Insurance cover premiums
  • Registration
  • Depreciation of the vehicle

However, the method you use to claim these expenses will depend on the type of vehicle you have and your business structure.

Choosing the Best Method for Your Business

If you operate your business as a sole trader or partnership, you have two primary methods to claim motor vehicle expenses: the cents per kilometre method and the logbook method. Let’s explore both to determine which might work best for you.

1. Cents Per Kilometre Method

Using the cents per kilometre method allows you to claim a set rate for each kilometre travelled for business purposes. You can claim up to 5,000 business kilometres per year using this method. It’s a straightforward option if you have a lower amount of business travel and prefer simplicity in record-keeping.

2. Logbook Method

The logbook method requires more detailed records but can be more beneficial if you use your vehicle extensively for business. You need to keep a logbook or diary for a continuous 12-week period, documenting every trip and the purpose of each journey. This logbook will help you determine the percentage of time you use your vehicle for business purposes. Based on this percentage, you can then claim the relevant proportion of all your vehicle expenses.

Important Considerations

When deciding which method to use, consider the following:

  • Ease of Record-Keeping: The cents per kilometre method is simpler but may limit the amount you can claim if you travel extensively for business.
  • Potential Deductions: The logbook method, though more time-consuming, can potentially yield higher deductions if you use your vehicle heavily for business purposes.

Private Use of Your Vehicle

Remember, you cannot claim any motor vehicle expenses related to the private use of your vehicle. This includes commuting from home to work unless your home is your primary place of business.

Record-Keeping Requirements

Knowing what records to keep and for how long is crucial. Most records need to be kept for five years, and they should be stored in a safe place. Ensure that all records are written in English or easily convertible to English. Keeping accurate and detailed records will make it easier for you to lodge your tax returns and defend any claims if audited.

Final Tips

  • Stay Organized: Implement a good record-keeping system. This could be digital or physical, but ensure it’s reliable and easily accessible.
  • Plan Ahead: If you choose the logbook method, start your 12-week logbook period at a time representing your typical business vehicle use.
  • Consult a Professional: If you’re unsure which method is best for you or need help setting up a record-keeping system, don’t hesitate to consult a tax professional.

By carefully considering your options and maintaining meticulous records, you can maximise your tax deductions for motor vehicle expenses and ensure compliance with tax regulations.

If you have any questions or need further assistance, please reach out. We’re here to help you make the most of your business deductions.