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Are You Eligible for Motor Vehicle Tax Deductions?

Posted by stratton on 05/06/2015 at 5:25pm

As a business owner or employee, the Australian Tax Office allows you to claim for certain motoring expenses. With the tax year-end fast approaching, now is a good time to think about making the most of your allowances.

This article provides a simple guide to what can and can't be claim and outlines the available methods for calculating your deductions.

Deductible Motoring Expenses Explained

The key to deciding if any motoring expense can be deducted is your main purpose for travel on the journeys you claim for.

If you want to claim for an expense you need to be using the vehicle for some business, or work related activity, other than just travelling between home and your normal place of work. The ATO specifically excludes private travel between home and your main place of work.

Everyday examples of eligible activities 1 include:

  • Visiting customers, attending meetings and conferences
  • Delivery or collection work
  • Travelling between home and multiple places of work
  • Needing to carry bulky tools, equipment or supplies

So long as your activities meet the ATO's criteria you can claim for the use of vehicles that are owned, leased, or hired under a hire-purchase agreement.

Methods of claiming work-related car expenses

The ATO currently allows four different ways to calculate your expenses. However, from July 1, this will be halved after two calculation methods were discontinued—the one-third of actual expenses method and the 12 per cent of the car's original value method—after only being used in less than two per cent of cases.

Included in three of the methods is an allowance for depreciation in your vehicle's value over the course of the financial year. However, the ATO sets an upper limit on the depreciable value for which you can claim.

For 2014-2015 the upper limit is $57,466. So even if your car was worth more than that figure at the start of the tax year, you can still only claim depreciation on a starting value of $57,466.

On the other hand, if your car was worth less than $57,466, you can only claim depreciation on the actual value of the car.

Cents Per Kilometre Method

Multiply the number of business kilometres per annum by an allowance per kilometre. The allowance is based on engine size and ranges from 63–75 cents per km. This method can be applied for distances of up to 5,000 kilometres.

From 1 July, a flat rate of 66 cents per business kilometre will take effect regardless of engine size.

One-third of Actual Expenses Method

For distances exceeding 5,000km per annum you can claim one third of total running costs, including depreciation on values up to the current depreciation limit.

Please note: This calculation method will be discontinued from 1 July, 2015.

12% of Original Value Method

An alternative way to claim for distances over 5,000km is to deduct 12% of the vehicle's value up to the depreciation limit.

Please note: This calculation method will be discontinued from 1 July, 2015.

Logbook Method

Keep a detailed travel logbook for 12 weeks, recording business and non-business related mileage for the entire period. From this you can calculate your business mileage as a percentage of the total for that period. You can then apply that percentage to your total operating costs for the year including depreciation. As with the one-third of actual expenses and 12% of original value methods, your depreciation claim is subject to the ATO's depreciation limit.


very important to keep records of all your motoring expenses throughout the year, along with evidence such as receipts and odometer readings to substantiate your claims. If queried by the ATO, you will need to show how you arrived at your figures.

What Can't You Claim?

You cannot claim using any of the above methods if your employer owns the car, or if the car is paid for as part of your salary package.

You cannot claim for any travel between home and your main place of work, unless you have two jobs, or more than one work place and need to travel from one workplace to the other.

If you are claiming because you have to carry bulky tools or equipment to and from work you can only do so if there is nowhere to keep the items at work. Another key point here is that you must actually need them to carry out your work. So for example, if you are a pharmacist, you can't just store some builder's tools in your car boot and use "carrying tools" as a pretext for claiming motoring expenses.

Calculating Your Claimable Expenses

The ATO provides a simple, anonymous, user friendly motor expense calculator through its website. You can use it to work out if your motoring expenses are claimable and exactly how much you can claim.

Making the Most of Your Annual Allowance

There are some great special tax considerations that can make for substantial savings by bringing purchases of cars and other capital goods forward to fall before June 30, i.e. the tax year-end. 2

Small businesses with an aggregated annual turnover of less than $2 million will now be able to immediately deduct each asset that costs less than $20,000. Assets can be new or old but must be acquired between 7:30pm (AEST) 12 May 2015 and 30 June 2017.

Any cars or other capital goods that cost more than $20,000 (which can't be immediately deducted) can be depreciated at 15 per cent in the first income year. The depreciation allowance for subsequent years is 30 per cent.

What is important to understand is that the deduction rule applies regardless of when the asset was purchased during the tax year, even if you buy on the very last day of the tax year.

By delaying your purchase until after June 30, you have to hold the asset for the remainder of the new tax year before claiming your 15 per cent tax depreciation allowance for the first year.

Effectively then, by delaying your new car purchase to July 1, you could miss out on saving 15% of its purchase value over the lifetime of ownership. For a ute costing $57,466 or more, i.e. the maximum depreciation allowance, your missed saving would amount to $8,620!

Of course there is no substitute for professional advice, alway consult your tax advisor on tax related matters.

stratton has access to some very competitive interest rates from lenders at this time of year. If you are interested in pricing up a new set of wheels before June 30, contact one of our finance consultants today on 1300 STRATTON (787 288) or start with an instant online quote .

1 This list of deductible expenses is by no means exhaustive. Always consult your tax advisor on eligible deductions.

2 Always make a point of consulting your tax advisor on tax related matters. Individual circumstances vary. Among other things, yours will depend on your method for claiming work-related car expenses.

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