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Small business accounting and car expenses

One of the most popular questions from a small business accounting perspective at this time of year revolves around motor vehicle expenses and how do I claim them. With running costs for cars getting higher and higher, it is only natural that every taxpayer would be looking at trying to claim some sort of motor vehicle expenses to reduce their tax and/or maximise their refund.

Briefly, the ability to claim motor vehicle expenses firstly relies on being able to justify them. If you carry bulky tools and your workplace has no place to store them, or have shifting places of employment or perhaps your home is your place of employment and you have multiple work sites, then you are probably eligible to be claiming some sort of motor vehicle expenses as a tax deduction. So how do you actually claim motor vehicle expenses? There are four distinct methods.

1. Rate per kilometre. Using this method limits you to claiming only 5000km worth of travel, multiplied by ATO determined rates based on engine capacity.

2. One third of actual cost. This method allows you to claim 1/3 of all car expenses if you travel more than 5000km per year and can justify your claim. Note that capital costs are excluded from this method.

3. 12% of Original Cost. This method allows you to claim 12% of the original cost of the car, up to the luxury car limit of $57,809.00. Again, you must have travelled more than 5,000km and be able to justify your business travel.

4. Log book method. By using a log book to determine your business percentage of travel you can then claim a percentage of all of your car expenses, based on the logbook. Any short term inconvenience of having to complete a log book for 13 consecutive weeks is more often than not compensated for by a much higher tax deduction.

So which method is best for you as a small business owner? Well that will depend on your personal circumstances and the only way to assess the right method is to chat with your small business accountant. By doing so, you can also ensure that you have ticked all the boxes required of the ATO, should your claims ever be put under the microscope.