Talking Cents

PART 2 Business accountants helping you claim car expenses in your tax return

Last week we looked at examples of individuals that are eligible to claim work related car expenses.

In this, our second instalment, we take a look at the various methods available and how to decide which one fits you the best.

a. Cents per kilometre - based on a set number of kilometres in a tax year.

No documentary evidence needed other than to show how you worked out the number of kilometres travelled. This method is best if you only do a few trips during the year and you can keep a diary of what those trips were for. The ATO issues three different per kilometre rates based on engine capacity.

b. 12% of original value - your claim equals 12% of the cost of your car.

Best used where you travel more than 5,000 km per year but don't want the strain of keeping documented records. You will still need to keep a record of how you decided you had travelled more than 5,000 work related kilometres. Note that this claim is limited to the luxury car limit, which is $57,466.00 for 2012/2013

c. One third of actual expenses - used if you travel more than 5,000km per year.

You only claim one third of the costs of running a car. The cost of buying the car, including finance costs are specifically excluded in this scenario. Written records will be required to show your total expenses and car details.

d. Log book method - the most complex method that requires a log book of all work related trips to be completed over a three month period and retained for five years.

A tax office approved log book must be maintained for three months to show all work related trips, starting odometer and ending odometer readings. The percentage of work based travel is then applied to all of your car expenses including depreciation on the value of the car, finance charges and all running costs. Recepts must be kept for all expenses as evidence in the event of an ATO audit.

Knowing just how much can be spent on owning and maintaining a car, the benefits of being able to legitimately claim at least some of those expenses can result in substantial income tax benefits. It is a complex area and it is always best to seek personalised advice on just how these income tax laws can be tailored to your individual circumstances, it's just not worth getting it wrong.