With many employees required to use their vehicles for work, it’s important to know which method will provide you with the best deduction and is suited to your situation. As with all deductions, record keeping is crucial. The following provides an overview of the requirements of the two methods available to claim a vehicle deduction.
Method 1: cents per kilometre method
Under the cents per kilometre method, you simply need to determine the number of business kilometres travelled during the financial year and multiply it by the ATO set rate – which for the 2018/19 year is 68 cents per kilometre.
Under the cents per kilometre method:
you can claim a maximum of 5,000 business kilometres per car
you do not need written evidence to show how many kilometres you have travelled, but the ATO may ask you to show how you worked out your business kilometres (such as, calendar or diary records of travel)
the rate covers all the vehicle running expenses (petrol, registration, insurance, service) and depreciation
The deduction is determined by simply multiplying the business kilometres travelled by the cents per kilometre rate.
Benefits
Simple and easy to calculate
Disadvantages
The deduction is capped at 5,000 business kilometres
Method 2: Log book method
The log book method requires a log book to be maintained over 12 continuous weeks to record the work related use of the vehicle. Once completed, the business percentage (determined by the log book) is multiplied by the running expenses and depreciation to determine the deduction.
It’s important that a valid log book is maintained. A logbook must be kept for 12 continuous weeks and contain the following information:
when the logbook period begins and ends
the car’s odometer readings at the start and end of the logbook period
the total number of kilometres the car travelled during the logbook period
the business-use percentage for the logbook period
the number of kilometres travelled for each journey (if you made two or more journeys in a row on the same day, you can record them as a single journey) – you will need to record the:
o start and finishing dates of the journey
o odometer readings at the start and end of the journey
o kilometres travelled
o reason for the journey (such as a description of the business reaso
the odometer readings at the start and end of each income year you use the logbook method.
WARNING: If a log book is invalid (i.e. the above requirements have not been met) then the ATO is highly likely to deny the deduction in the event of an audit.
Benefits
Potentially higher deduction than the cents per kilometre method
Once completed, a log book is valid for 5 years
Disadvantages
Onerous record keeping – 12 week log book and all invoices for running expenses need to be kept. If you use the log book method, you will need to keep track and record all vehicle expenses - petrol, registration, insurance, service.
Final Points
If your car is provided by your employer, or you salary sacrifice your car, you cannot claim any of the costs in your personal tax return.
There are several log book apps available which help track car travel and make completing a log book much easier. Check out GoFar and GPS Log Book as examples of the apps available on the market.