Motor Vehicle Expenses – To Deduct or Not To Deduct?

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Motor Vehicle expenses are not ordinarily deductible especially if you work in one location, such as just at the office. However there are circumstances which will allow you to claim especially if you have two jobs.

Following the changes announced in the 2015-2016 Federal Budget, the way in which individuals will now be able to claim deductions for motor vehicle use in the course of performing their jobs as employees has been simplified.

While ‘use’ does not include the cost of travelling between home and work since such use is considered private travel, individuals are able to claim motor vehicle costs for:

  • Carrying bulky tools or equipment
  • Attending conferences or meetings
  • Delivering items or collecting supplies
  • Travel between two separate places of employment

Additionally, if you receive an allowance from your employer for car expenses, it is considered assessable income and the allowance must be included in your tax return. However, this amount is usually shown in your payment summary.

Currently, the methods for claiming such costs are:

  • Cents per kilometres
  • Logbook
  • 12 cents of original value
  • One third of actual expenses

Under the changes, the ‘12 cents of original value’ and ‘one third of actual expenses’ will be abolished which means that taxpayers will now only be able to claim a maximum deduction for up to 5,000 work related kilometres based on a reasonable estimate or maintain a logbook for 12 weeks and claim actual expenses based on a work related use percentage. This method (logbook) can be used regardless of the kilometres travelled. The deduction is calculated by multiplying all expenses incurred with the business percentage specified by maintaining a log book. The log book must be kept for a 12 week continuous period and once completed; the percentage can be used for up to 5 income years before a new logbook is required.

More importantly, the current ‘cents per kilometre method’; will now be standardised by replacing the three current rates based on engine size  with one rate set at 66 cents per kilometre which will apply to all motor vehicles irrespective of engine size of type of engine. These changes will enable taxpayers who drive electric and hybrid cars to access the cents per kilometre method as those cars do not qualify to use the current rates that are based on rotary and normal engine sizes.

It is up to the discretion of the taxpayer to use either method depending on which method they feel best captures the actual running cots of their vehicle. Additionally, the rate will be set at the beginning of the tax year (01 July 2015) rather than at the end of the year as occurs under the current legislation.

This move has been greeted as environmentally positive and with little criticism.

It is important to have the evidence and prepare any log book correctly. If you need any help with your tax return and the deductions you are eligible for please do not hesitate to contact our team at DKM Accounting & Taxation Services Pty Ltd we will be happy to assist with all your taxation needs.

The information contained in this blog is of a general nature only and does not constitute professional advice. We recommend that you seek professional advice in relation to your particular situation and circumstances.

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