Understanding how to calculate tax deductions for motor vehicles in Australia is crucial for individuals and businesses alike. Whether you use a car for work-related purposes or as part of your business operations, knowing the correct methods can help you maximise deductions and reduce your taxable income.
In Australia, there are two primary methods for claiming deductions related to motor vehicles: the cents-per-kilometre method and the logbook method.
Cents-Per-Kilometre Method:
This method allows you to claim a set rate for each business kilometre travelled. As of the 2024 financial year, the rate is 85 cents per kilometre for all motor vehicles. You can claim a maximum of 5,000 business kilometres per car per year under this method.
Logbook Method:
The logbook method requires more detailed record-keeping but can often result in higher deductions. To use this method, you must keep a logbook for at least 12 continuous weeks, documenting all travel for both business and personal purposes. This logbook will determine the percentage of vehicle use that is business-related. You can then claim this percentage of expenses such as fuel, insurance, registration, depreciation, and repairs.
This log book can be relied upon for 5 years or until there has been a change of use of the vehicle. YBM have logbooks available at both of our offices – please feel free to drop by or request one to be sent!
Calculating Deductions:
For the cents per kilometre method, calculate your total deduction by multiplying the number of business kilometres, up to 5000, by the ATO rate. For the log book method, apply the business use percentage (from your logbook) to your actual motor vehicle expenses.
Records and Documentation:
To substantiate your claims, keep detailed records of all motor vehicle expenses, including receipts for fuel, maintenance, insurance, registration, purchase invoice and any lease or loan agreements if applicable. Maintain your logbook up to date and ensure it accurately reflects your vehicle usage.
Consultation and Compliance:
Navigating tax deductions for motor vehicles can be complex. It’s advisable to seek advice from a qualified tax professional or accountant who can provide tailored guidance based on your specific circumstances and ensure compliance with Australian tax laws.
Conclusion:
Calculating tax deductions for motor vehicles in Australia involves choosing between the cents-per-kilometre method and the logbook method, each with its own requirements and potential benefits. By understanding these methods and maintaining accurate records, individuals and businesses can effectively reduce their taxable income and maximise their deductions. Please contact our office for advice specific to your circumstances, or to request a free logbook!