In this article we have outlined the main issues for individuals and partnerships. Our next article will focus on trading companies and trusts.
Types of motor vehicles
The type of motor vehicle you drive can affect how you calculate your motor vehicle claim. A motor vehicle is either a ‘car’ or an ‘other vehicle’.
A ‘car’ is a motor vehicle that is designed to carry:
- a load of less than one tonne, and
- fewer than 9 passengers.
Under Fringe Benefits Tax Law, the designed load capacity of a motor vehicle is to be taken as the gross vehicle weight as specified on the compliance plate by the manufacturer (broadly, the maximum all-up loaded weight), reduced by the basic kerb weight of the vehicle. For this purpose, basic kerb weight is synonymous with unladen weight. It does not include the weight of goods or occupants.
Many four-wheel drives and some utes are classed as cars, as this load capacity is less than 1 tonne – particularly if it is a dual cab. The vehicle specifications can be reviewed prior to purchasing a vehicle, if a tax payer wants to ensure the vehicle has a carrying capacity of at least one tonne, therefore being classified as a ute.
- minivans that can carry 9 or more passengers
- utes or panel vans designed to carry loads of one tonne or more
Sole traders and partnerships
If you operate your business as a sole trader or partnership (where at least one partner is an individual), the way to calculate your tax deduction depends on the type of vehicle and how it is used.
You can only claim motor vehicle expenses that are part of the everyday running of your business (such as travelling between different business premises). If the vehicle is used for both private and business purposes, you must exclude any private use (such as going shopping, driving children to school etc).
A sole trader can either claim a vehicle that is a ‘car’ under the cents per kilometre method or the log book method.
Cents per kilometre method
You can claim a maximum of 5,000 business kilometres per car, per income year, using the cents per kilometre method.
Rates are reviewed annually and takes all of your car running expenses, including depreciation, into account.
You don’t need written evidence, but you must be able to show how you worked out your business kilometres (for example, calendar or diary records).
For claims above 5,000 kilometres, you must use the logbook method to claim the entire amount.
You can claim the business-use percentage of each car expense, based on logbook records.
You must record:
- when the logbook period begins and ends
- the car’s odometer reading at the start and end of the logbook period
- details of each journey, including start date and finishing date, odometer readings at the start and end, kilometres travelled, and reason for the journey.
You must keep the logbook for a period (at least 12 continuous weeks) that is representative of your travel throughout the year. You can then use this representative period to calculate your claim for 5 years if you:
- keep the logbook
- take odometer readings at the start and end of each year that you use it.
The ATO allows the use of approved apps to record the detail of a log book. Please contact our office to discuss which apps are currently approved.
If you want to use the logbook method for two or more cars, the logbook for each car must cover the same period. The 12-week period you choose should be representative of the business use of all cars.
A sole trader cannot use the cents per kilometre for an ‘other vehicle’. The claim for the business use must be based on actual expenses relating to business use.
In an ATO audit it is not enough to simply say you use your ute 100% for business use. There needs to be evidence to support that. If you are using a ute for both private and work purposes the best course of action is to keep a full log book. This will substantiate your claim and allow a fair claim to be calculated.
The ATO is becoming more active in commencing audits in this area and your record keeping may mean the difference between a successful outcome and adjustments to your tax deductions.
This article is the first of two. The next article will look at trading companies and trusts. It is meant as a broad outline of current requirement. If you have any questions or queries relating to your personal circumstances, please do not hesitate to contact us to discuss.