As far as tax deductions go, including a claim for a motor vehicle is the most common in Australian taxpayer’s income tax returns.
Importantly, it is also the deduction most people get wrong. This can lead to fines and penalties (as well as interest charges) levied upon you by the ATO in the event of an audit or investigation in to the calculation of your car claim.
There are two methods for claiming a motor vehicle deduction, cents per kilometre and the logbook method, we have broken them down for you below:
Cents per Kilometre:
Under this method, you simply calculate the number of kilometres you travelled for work-related purposes and apply a statutory rate, currently 68c per kilometre. This figure considers all your vehicle running expenses, including depreciation. The limit is 5,000 kilometres per vehicle you own.
In the event of an audit you would need to show how you arrived at your figure for kilometres.
Critically, travelling directly from home to work as an employee is not deductible. This is a personal trip as you have not yet started earning any income from your work.
The following trips are the type that you need to keep a track of including dates and specific purpose:
- Travelling between work sites on the same day, for example, between hospitals;
- Travelling from home to somewhere other than your usual place of work at the direction of your employer, for example, one return trip for a rural rotation;
- Travelling from home or work to a place of work-related study or conference and back again; and
- Any trip where you need to carry bulky tools or equipment as a requirement of your employment.
Whilst you can claim driving home from places other than your usual place of work, you may also be able to claim getting home from work depending on the circumstances.
For example, Dr Jones drives from home to a study group before her RACP exam. She then drives from the study group to work a night shift at her usual hospital. At the end of her shift, she drives home.
All of Dr Jones’ driving that day (and night) is tax deductible and should be recorded.
As a locum doctor travelling to many and varied workplaces at the instruction of a locum agency, you may be able to claim additional kilometres including home to work.
You cannot claim a trip to or from work if within that trip you make an incidental detour. For example, calling in to see a patient on your way home or dropping off some mail for the hospital.
There is no GST claim under the cents per kilometre method and, if you are in business, you do not include the expense on your Business Activity Statement.
This method for claiming your motor vehicle costs is much more onerous.
You are required to keep a logbook of every single trip you complete, regardless of purpose, for 12 weeks to complete your logbook.
By taking the work-related or business kilometres travelled and dividing this by the total number of kilometres, you determine your logbook or business use percentage.
You may then apply this business use percentage to all your car expenses – fuel, registration, insurance, servicing, repairs and maintenance, interest on car finance and depreciation of the vehicle. You can also claim this same percentage of GST on the expenses if you are registered.
You will need to keep evidence of all these expenses. For fuel you can choose to apply an estimate based on litres of fuel consumed by your vehicle per 100 kms and the number of kilometres travelled in the year.
The log book itself is valid for five years and needs to be replaced in the event you change cars.
When purchasing a new car, you can claim the business use percentage of the deprecation up to the Depreciation Cost Limit (DCL) which is currently $57,581.
Vehicles are typically depreciated over 8 years meaning a 25% claim when using the Diminishing Value method of depreciation.
Therefore, the maximum first year depreciation claim assuming a 100% logbook percentage, a 1 July purchase date and no GST registration is $14,395.
This is also the limit for which you can claim GST on the purchase of the vehicle itself. For example, say you purchase a $99,000 vehicle from a dealer, you would pay GST of, approximately, $9,000 to them.
In your BAS you are limited to a GST claim of the logbook percentage of 1/11th of $57,581 being $5,234.
This is something made available to medical professionals and hospital employees through their salary packaging companies.
If you have acquired a car through a novated lease and are paying for your car’s expenses through salary packaging, you cannot include a claim for motor vehicle travel in your tax return.
This would be ‘double-dipping’ (acquiring a tax benefit twice for the same expense) and illegal.
Often it is easier to take up a novated lease to derive the maximum tax benefit from your car. No logbook is required, and the hospital claims all the GST on your behalf.
However, do consider the additional costs of taking up the lease and the fact that you are locked in for a period of at least a year before engaging the salary packaging company.
Your DPM tax consultant will be able to advise the best and most appropriate method for claiming a tax deduction or if a novated lease suits you so do seek advice.
Disclaimer: * The information contained in this site is general and is not intended to serve as advice. DPM Financial Services Group recommends you obtain advice concerning specific matters before making a decision.