Less is more when it comes to home decor, your golf score… and calculating your vehicle expenses?
That’s right! The ATO has decided to try out the minimalist trend and limit us to only two car expense calculation methods. Up until 2015, we were able to choose between the following methods:
- 12% of the original value
- Cents per kilometre
- ⅓ of actual expenses
- Logbook for 12+ continuous weeks
Don’t get too cozy with the list above. This year, the ATO is narrowing down our options to the following:
- Logbook method
- Cents per kilometre method
It’s important to know the ins and outs of these methods in order to choose the one that works best for you. Let’s take a look.
The Car Logbook Method
This method is the more popular choice among business owners and sole traders. Why, you ask? It will typically give you a bigger refund than other methods.
How does it work?
This method is based on your car’s ‘business use percentage’ – in other words, how far you travel in your car for business purposes. You’ll need to keep a record of every trip you take in your car for a consecutive 12-week period. It is important that you record every trip – personal and business.
What information should be logged?
- Trip date
- Trip start and finish times
- Start and end odometer readings for each trip
- Total kilometres travelled for each trip
- Purpose of each trip (business or personal)
- Start and end dates for the logbook period
- Start and end odometer readings for the logbook period
- Total kilometres travelled throughout the logbook period
- Business use percentage calculation for the logbook period
How is the business use percentage calculated?
After the 12 consecutive weeks have been recorded, you can divide the business kilometres travelled by the total kilometres travelled, then multiply by 100. Let’s do the math:
If you traveled 2,500 total kilometres for the 12 week period, and 800 of those were for business purposes, then you would do this:
800 / 2,500 x 100 = 32
This calculates that your car’s business use percentage is 32%. You would be able to claim 32% of your vehicle expenses for the financial year.
The Cents Per Kilometre Method
This one is less tedious, seeing as you don’t need to keep track of each and every trip you make in a handy dandy notebook. However, it won’t maximize your refund either.
How does it work?
This method is based on a fixed price for every kilometre you travel for business purposes. Prior to 2016, the ATO based the amount per kilometre on the size of your vehicle’s engine. Now, the ATO allows a fixed price of $0.66 to be claimed for every business kilometre traveled (no matter the vehicle type). This maxes out at 5,000km per year. Using this method, you do not need written evidence to show how many kilometres you traveled but the ATO can ask you to show how you calculated the total amount.
How is this calculated?
Let’s take a look at an example.
You make two business related trips each work day in your own vehicle. Each trip is 10km, totaling out to 20km per day in work-related travel. To work this out, you would do this:
20km x 5 work days = 100km travelled per week
100km per week x 52 weeks in a year* = 5,200km travelled per year
5,200km x $0.66 = $3,432.00
You would be able to claim a car expenses deduction of approximately $3,432.00 for the year.
*Remember to subtract any weeks that you have off per year at this point in your calculations.
Which method works best for you?
Some prefer a larger refund, while others don’t mind a bit less as long as they have the convenience factor. The choice is yours. Whichever method you choose, be sure to do one thing. KEEP YOUR RECEIPTS. The ATO has full reign to ask you for documentation to back up either method you use.
If you’re still unsure of which method to choose, we’re here to help! You can reach out to our tax team via email or phone and one of our representatives will be able to provide some guidance and tips.
business tax deductions, car expenses, car logbook method, cents per kilometre method, job specific tax deductions