Are you meeting your record requirements?
When claiming car usage for tax purposes, it is important to ensure that you are meeting record requirements. There’s nothing worse than seeing clients who wait right up until tax time to check whether their recording method is correct - because in some cases, it isn’t.
The vehicle usage record keeping method best suited to you may be different to your colleague’s or curious neighbour’s. That’s why it is crucial that you not only understand what is required of you by the ATO (Australian Tax Office), but that you also ensure the correct record keeping methods are being put into practice. This goes for employees and employers in a range of industries. So first up, let’s discuss who is entitled to claim car usage.
Who can claim car usage?
Any employee or employer who is required to drive their vehicle for work purposes is able to claim car usage, unless they have received reimbursements. This goes for tradies, those in the health sector, sole traders and individuals working from home, hospitality workers and a whole range of other industries.
You are able to claim business travel in a car that you own, even if it is not registered in your name, a car that you have leased or even a car that you have hired under a hire-purchase agreement. If you are using someone else’s car, you may be able to claim some travel expenses such as fuel and tolls however overall maintenance is not applicable.
If your car is used for personal and business travel, you must ensure that you account for each use individually and don’t simply claim the entire car as work related expenses. In order to do so correctly, record keeping methods have been put in place by the ATO.
So, what does the ATO see as appropriate record keeping methods for car usage? And which style is best suited to you? Since abolishing super confusing record keeping options, the ATO now offers just two methods to choose from. We love simplicity.
Cents Per Kilometre
Both methods are simple and straightforward to apply to work related travel, so let’s delve into which method is best for you when claiming car usage.
Cents Per Kilometre
The cents per kilometre method is best suited to people who predominantly use their car for personal use and do not see themselves exceeding 5000 kilometres of business related travel over the course of a year.
At time of writing (2017), the cents per kilometre method allows individuals to claim kilometres at a rate of 66 cents each. This is quite a high rate and one which suits some individuals well. The cents per kilometre method is able to be used for up to 5000 kilometres with no written evidence. However, before you start thinking that this will be easy to fudge, the ATO requires reasoning as to how you reached your final figure. This may be in the form of a diary documenting business travel. And if the car is shared between two people, for example, a couple who have separate places of employment, each individual can claim up to 5000 kilometres.
Some handy tips on keeping a diary of travel are:
● Transferring meeting dates and locations to a notebook
● Using google maps to determine kilometres travelled
● Writing out your week’s travel as part of your bookkeeping tasks
● Reviewing your week’s email trails in case any unexpected meetings or travel popped up that you hadn’t scheduled in a diary
The logbook method is best suited to those who use their car predominantly for work and envisage travelling further than 5000 kilometres for the year while on the job.
The logbook method uses a percentage calculation to determine the total expenses you can claim on your car. For example, if you travelled 100,000 kilometres over the total of a year and 80,000 of those were for work purposes, you can claim 80% of all vehicle related expenses. If opting for this method, a minimum continuous period of 12 weeks is required for record keeping purposes. This can then be applied to the remaining 9 months of the year.
A log book requires you to keep record of your car’s odometer reading, the date and where you were travelling to and from - keeping in mind that travel to and from work is not considered business travel and can only be claimed under some circumstances. An example of a circumstance where traveling between work and home can be claimed as business car usage is if you have bulky tools needed for work which cannot be stored safely at your workplace and must be stored at your personal residence.
Keeping fuel receipts is also strongly recommended. While fuel and oil costs can be claimed based on estimates made using your odometer’s reading, with fluctuating fuel prices you could be doing yourself out of a pretty penny.
Remember to take photos of your receipts as these are heat sensitive and will fade over time. Other expenses such as servicing, purchasing new parts, car registration and insurance payments must have written records (i.e. receipts) in order to claim these expenses, so be sure to keep them in a safe place.
Some tips on how to best follow this method are:
● Keep your logbook on your car’s dashboard so that it’s the first thing you see when getting into your car
● Place a pen on the driver’s seat of your car as a prompt reminder to fill in your logbook
● Take photos of receipts using the ATO app
● Have a folder titled car and store all servicing, registration and insurance receipts in it
Did you find these car usage record keeping tips useful? The ATO site can be a useful source of generic information, however it is always wise to speak with your accountant when it comes to ensuring that you’re following the best practices for all record keeping requirements.