Get to know Tax Office work vehicle claim changes
There has been a change in the way small businesses can claim work-related motor vehicle expenses.
The Tax Office has made it much simpler, according to accounting and financial planning firm Quill Group.
Quill Group’s Kristin Dunn provides some essential advice on the new measures.
How you used to claim
Traditionally there has been four methods of ATO approved motor vehicle expense claims up to 30 June 2015:
1. Cents per km;
2. Logbook method;
3. 12 per cent of the original value; and
4. One-third of actual expenses incurred.
The new way to claim
That has all changed now with the new legislation passed on 30 November 2015. This has reduced the options down to either one of the following:
1. Logbook method; or
2. Flat rate of 66 cents per kilometre method.
Historically, when claiming motor vehicle expenses using the cents per kilometre method, the rates had varied according to engine size, and the maximum number of kilometres you could claim was set at 5000kms.
From 1 July 2015, the flat rate of 66c/km will apply regardless of the engine size of your vehicle. The maximum number of kilometres you can claim remains at 5000km.
To make expense claims using this method, written evidence is not required, however, you will need to be able to show how you worked out your business kilometres.
If you have a larger car that is used primarily for business purposes, the logbook method is recommended.
When claiming under the logbook method, you will need to determine the business use percentage of the vehicle based on a logbook prepared over a 12-week continuous period; you can purchase these from stationery retailers or download one of the many apps available on both Android and iPhone.
The logbook method
Logbooks are valid for a period of five years unless your business use changes dramatically. Your logbook needs to contain the following information:
• When the logbook period begins and ends;
• The car’s odometer readings at the start and end of the logbook period;
• Total number of kilometres the car travelled during the logbook period;
• Business-use percentage for the logbook period;
• Odometer readings at the start and end of each income year you use the logbook method;
• Number of kilometres travelled for each journey recorded in the logbook (if you made two or more journeys in a row on the same day, you can record them as a single journey).
You will need to record:
o Start and finishing times of the journey;
o Odometer readings at the start and end of the journey;
o Kilometres travelled; and
o Reason for the journey.
The 12-week period can cross over two financial years, provided the period is representative of your travel throughout the year.
This means if you start your logbook late in May or early June, you can continue to record information into July through to September to cover the 12 weeks required.
The business percentage calculated for the 12-week period is applied against the running costs of the vehicle, the decline in value and any interest charges as a result of vehicle financing (i.e. fuel, oil, repairs and services, insurance and registration).
While it may appear to be a lot of information to retain for record-keeping purposes, the tax benefits are certainly worth it for vehicles used predominantly for business purposes.
If you require any assistance with determining which method you should be using or how this legislation impacts your tax position, please contact Quill Group.