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Deductions For Motor Vehicle Expenses

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					 GUIDE - TAXATION DEDUCTION
FOR MOTOR VEHICLE EXPENSES




                              Page 1
                             BUSINESS SYSTEMS

             SYSTEMS REQUIRED TO OBTAIN A TAXATION
             DEDUCTION FOR MOTOR VEHICLE EXPENSES

                                  CONTENTS



                                                                   Page

1.    Employer Supplied Vehicle                                     3
2.    Vehicle Log Book                                              3
3.    Fringe Benefits Tax                                           3
4.    Calculation Of Fringe Benefit Tax                             4
5.    Statutory Formula Method                                      4
6.    Actual Operating Cost Method                                  4
7.    Self Employed Or In A Partnership                             5
8.    Log Book Maintenance                                          5
9.    Travel For Business Of Less Than 5000 Kilometres Per Annum    5
10.   More Than 5000 Kilometres On Business - 12% Of Cost Method    6
11.   Most Appropriate Method                                       6




                                                                          Page 2
                                         BUSINESS SYSTEMS

                        SYSTEMS REQUIRED TO OBTAIN A TAXATION
                        DEDUCTION FOR MOTOR VEHICLE EXPENSES


There are a number of different systems currently in operation to obtain income tax deductions for motor
vehicle expenses. These can be summarised as follows:-


1.     Employer Supplied Vehicle

       If the motor vehicle is supplied by the employer to an employee, (a working director is considered
       an employee of the company), then the only way that 100% of motor vehicle expenses can be
       claimed as an income tax deduction is if a log book is kept which details the purposes of all trips
       made by the vehicle and all of those trips are for business purposes.



2.     Vehicle Log Book

       If the vehicle is used exclusively for business (travelling to and from home is not a business
       related expense) then you would be able to claim 100% of the vehicle expenses for income tax
       purposes.

       However, if your log book only supports that say, 70% of the mileage was for business related
       purposes, then that is all that you would be able to claim as a percentage of the total expenses that
       have been incurred on the motor vehicle.



3.     Fringe Benefits Tax

       An alternative to this is to pay fringe benefits tax. This tax is based on the total annual kilometres
       that the vehicle travels, irrespective of whether the travelling is for business or personal purposes.

       As long as you record full details of the costs of running the vehicle then all of the vehicle running
       expenses are tax deductible, but you have to pay fringe benefits tax.

       If Fringe Benefits Tax payable was over $3,000 in the previous year then you will have to pay
       Fringe Benefits Tax in four instalments during the following year.




                                                                                                       Page 3
4.   Calculation Of Fringe Benefit Tax

     Details of the calculation of fringe benefits as it relates to motor vehicle expenses are as follows:

     There are two methods to calculate the taxable value of the motor vehicle fringe benefit -
     Statutory Formula Method or Actual Operating Cost Method.



5.   Statutory Formula Method

     1.      Determine the base value of the motor vehicle (original cost if owned, or market value if
             leased). If a vehicle has been owned or leased for four years the base value is reduced by
             one-third.

     2.      Determine the number of kilometres travelled during the year to find the applicable
             taxable percentages:

             Less than 15,000 klms                           26%
             To 24,999 klms                                  20%
             To 40,000 klms                                  11%
             Over 40,000 klms                                 7%

     3.      Multiply the base value of the motor vehicle by the applicable taxable percentage.
             Multiply this amount by the Fringe Benefits Tax Rate 48.5%. (Reduce this by the number
             of days the vehicle was not available for private use). Subtract any contributions by the
             employee e.g:

             Cost Price                                $25,000
             Kilometres travelled per annum             17,000
             $25,000 x 20%           =                 $ 5,000 (taxable value)
             Tax Payable 46.5%                         $ 2,325



6.   Actual Operating Cost Method

     .1    Determine operating costs for the period, e.g. fuel, insurance, repairs and registration etc.

     .2    Calculate depreciation for the period

     .3    Calculate interest ( written down depreciated value multiplied by the benchmark interest
           rate - regardless of what, is actually paid, if any).

     .4    Add 1, 2 and 3 together.




                                                                                                      Page 4
     Multiply that amount by the percentage of private use during the year or part of the year when the
     motor vehicle was used to provide fringe benefits. (This is determined by use of a log book to be
     kept for a minimum of 12 consecutive weeks).

      Deduct any employee contribution, e.g.:

      Total Operating Costs                                                  $   4,000
      Written Down Depreciated Value $20,000 @ 22.5%                         $   4,500
      Benchmark interest $20,000 @ 6.05%                                     $   1,210
                                                                             $   9,710

      Private Use Percentage per log = 30% ($9,710 x 30%)               =    $ 2,913
                                                                      (taxable value)
      Tax Payable 46.5%                                                    = $1,354



7.   Self Employed Or In A Partnership

     If you are a self-employed person or in a partnership then the treatment of motor vehicles
     expenses is different from that outlined above.

     If you wish to claim a percentage higher than 33.1/3% of your motor vehicle expenses then you
     must keep a log book. You must also keep full details of the expenditure that has been incurred in
     running your vehicle. The percentage as per your log book that relates to business purposes, is the
     percentage of the actual motor vehicle expenses that is claimed.



8.   Log Book Maintenance

     In all cases the Taxation Office only requires the log book to be kept for 3 months, subject to there
     being no major change in your use of the vehicle, which would render the 3 month period as being
     non-representative of a full 12 month period.



9.   Travel For Business Of Less Than 5000 Kilometres Per Annum

     If you travel less than 5,000 kilometres for business purposes per annum then you can claim motor
     vehicle expenses on a cents/kilometre basis based on the size of the vehicle engine.




                                                                                                    Page 5
                                   Rates Per Business Kilometre

       Ordinary Car - Engine              Rotary Engine Car - Engine
       Capacity                           Capacity                                 Cents Per Kilometre

       1600 cc                            800 cc                                          63 cents
       1601 cc to 2600 cc                 801 cc to 1300 cc                               74 cents
       2601 cc +                          1301 cc +                                       75 cents



10.   More Than 5000 Kilometres On Business - 12% Of Cost Method

      If you used your car to travel more than 5,000 Business kilometres during the year then you can
      use the 12% of original value method. i.e. 12% of the cost of the car if you bought it or 12% of the
      market value at the time you first leased it.



11.   Most Appropriate Method

      As you can see from the foregoing, there are many variations on the treatment of motor vehicle
      expenses. It is recommended that you consult your Professional Accountant for a discussion on
      the most appropriate method of claiming for motor vehicle expenses as it relates to your business.




                                                                                                     Page 6
                                              DISCLAIMER

The forms and commentaries contained in this paper are provided as a guide only and should not form the
sole basis for any advice in relation to the particular situation of any person without first obtaining proper
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