Motor Vehicle Expenses - Saward Dawson by jianghongl


									   Motor Vehicle Expenses
                               A tax deduction is            than one income earning activity (such as
                               available for motor           employment related use and for inspecting your
                               vehicle expenses if you       rental property) you can only claim a total of
                               use your car to gain          5,000 kilometres over all income earning
                               assessable income. This       activities.
                               involves travel in your car
                                                             An individual is, however, entitled to claim a
                               which is solely
                                                             maximum of 5,000 business kilometres for each
                               undertaken in performing
                                                             car they own. Therefore, if an individual owned
                               your work/investment
                                                             three cars and undertook business trips totalling
                                                             more than 5,000 kilometres in each car, they
   A deduction for car expenses can be calculated by         could claim up to a maximum of 15,000 business
   using one of the following methods:                       kilometres using this method.

         Cents per kilometre                                 More than one taxpayer may claim business
         Log book                                            kilometres for the same car. For instance a
         12% of original value                               husband and wife can claim up to 5,000
                                                             kilometres each for the same car, provided these
         One-third of actual expenses
                                                             trips were undertaken separately and for business
   When completing your income tax return, we will           purposes.
   consider your situation and claim car expenses
                                                             Record keeping
   using the most tax effective method.
                                                             The statutory rates listed above take into account
                                                             the average running costs of your car. Therefore
   ‘Cents per kilometre’ method                              you do not need to substantiate (or keep a good
   Under the cents per kilometre method your claim           record of) your car expenses under the cents per
   is calculated by multiplying the number of                kilometre method. However, you may be required
   business kilometres travelled during the year by          to show how you arrived at your estimated
   the statutory rate as determined by the Taxation          business kilometres and show proof of ownership
   Office. The relevant statutory rates for the 2011         of the vehicle.
   financial year are:

     Car                 Engine Size            Rate per     ‘Log book’ method
     Description         (Ordinary)            Kilometre     This method can be used regardless of the
     Small               Up to 1.6 litre         63 cents    number of kilometres you travel for work each
     Medium              1.601 litre -           74 cents    year. Under the log book method, your deduction
                         2.6 litre                           is calculated by multiplying the running costs of
     Large               More than               75 cents    the car (including depreciation, subject to the
                         2.601 litre
                                                             luxury car limit of $57,466 for 2011 and 2012
                                                             financial years) by the business use percentage as
   Regardless of how many business kilometres the
                                                             indicated by the log book.
   car travelled during the year, the claim is limited
   to a total of 5,000 business kilometres per car per       A log book gives a representative business use
   individual. If you are using your car for more            percentage for your car. The log book should

                                                                                                Published July 2011
                        20 Albert Street / PO Box 256
                              Blackburn Victoria 3130
                     T: 03 9894 2500 F: 03 9894 1622
therefore be maintained during a period which               the number of log book business kilometres
represents normal business use allowing for                 expressed as a percentage of the total log
holidays, busy times of the year, long trips and            book kilometres.
sickness.                                              In most cases, a journey from home to a place of
                                                       work or business is regarded as a private journey.
The log book must be maintained for a continuous
period of at least 12 weeks. This continuous 12-       Record keeping
week period may overlap the start or end of the        You should provide Saward Dawson with a copy
income year, so long as it includes part of the        of your log book in the year in which it is
year. Once a log book has been maintained it can       maintained. You must also record the odometer
be used for up to five years, provided the             reading of your car at 30 June each year. To
business use percentage does not change by             enable us to calculate your claim we recommend
more than ten percent during the five year period.     you keep a record of all running costs for your car
You will need to maintain a new log book in the        each year, such as registration, insurance and
2012 financial year if you have not kept one since     servicing.   Saward Dawson can calculate your
the 2007 financial year.                               estimated fuel costs if you have not kept records
                                                       of this expenditure. To calculate the fuel claim we
During the log book period you must make the
                                                       will require the engine capacity of the car and the
following entries into your log book after each
                                                       vehicle’s odometer reading at the beginning and
journey is completed:
                                                       end of the financial year. If the car is financed,
     the date the journey began and ended              we will require a copy of the finance agreement.
     the car's odometer readings at the start and
     end of the journey                                Changing cars during the year
                                                       If you are using the log book method and you
     how many kilometres the car travelled on
                                                       change cars during the year, you can continue to
     the journey
                                                       use the same log book percentage for the
     the purpose of the journey. It is essential to
                                                       replacement car if you nominate the new car to
     provide a clear description of why the trip
                                                       replace the existing car. This nomination must be
     was undertaken, for example, "Ten
                                                       made in writing and takes effect from the date
     customer calls, Bathurst - Orange area"
                                                       specified in the nomination. After the nomination,
     (writing "B" for business or "P" for private is
                                                       the replacement car is treated as the original car
     not sufficient).
                                                       and you will not need to keep a new log book for
Private journeys do not have to be recorded in         the replacement car. The nomination must be
your log book. However, the following must also        completed before lodging your income tax return
be entered in the log book:                            for the relevant year.
     when the log book period begins and ends
     the car's odometer readings at the start and
                                                       ‘12% of original value’ method
     the end of the logbook period
                                                       You may only use this method for claiming car
     the total number of kilometres that the car
                                                       expenses if your car travelled more than 5,000
     travelled during the period
                                                       business kilometres in the income year. This can
     the number of kilometres that the car             be pro-rated over the year if your car was
     travelled on journeys recorded in the log         acquired or disposed of during the year. For
     book, in the course of producing your
                                                       example, if your car was purchased on
     assessable income, and
                                                       1 January 2011 and travelled 3,000 business

                                                                         FocusOn Motor Vehicle Expenses
kilometres to 30 June 2011 the annualised               in the section relating to the log book method,
kilometres is 6,000.                                    Saward Dawson can calculate your estimated fuel
                                                        costs if you have not kept records of this
To claim a deduction under the 12% method, the
                                                        expenditure, provided you have maintained
cost of the car is multiplied by 12%. If the car is
                                                        odometer readings at the beginning and end of
leased, the market value of the car at the
                                                        the financial year.
commencement of the lease is multiplied by 12%.
The cost of the car is capped at $57,466 (luxury
car limit) for the 2011 financial year. If the car      Other issues
was purchased or disposed of during the year, the       There are a number of issues that must be
deduction is then apportioned over the number of        considered by every taxpayer wishing to claim a
days the car was owned.                                 tax deduction for car expenses, regardless of the
                                                        method used.
Record keeping
You can justify your claim by making a reasonable       Travel between home and work
estimate of the business kilometres travelled           Typically, travel between home and work is
during the year.                                        considered to be private and therefore not
                                                        deductible. This travel is private and cannot be
To claim car expenses following this method we
                                                        claimed even if:
will require a copy of the purchase contract of the
car.                                                          you complete minor tasks, such as picking
                                                              up the mail on the way to work
                                                              you are on-call or you work shifts, or
‘One-third of actual expenses’                                there is no public transport near where you
method                                                        work.
You may use this method for claiming car                However, you can claim a deduction for travel
expenses only if you travelled more than 5,000          between home and work under limited
business kilometres in the income year. This can        circumstances, such as:
be pro-rated over the year if your car was
                                                              if you are required to transport bulky tools
acquired or disposed of during the year.
                                                              and equipment between home and work and
Using this method, your claim is one-third of the             you cannot store these items at work
running costs of your car for the financial year. If          if you are an itinerant worker with no
your car was not used for work purposes for the               regular place of work
whole year, you can still claim one-third of the              if you travel to an alternate place of work
total expenses for the entire year. This is available         such as travel to work sites or travel to
if the car travelled (or would have travelled if              clients
owned for the whole year) more than 5,000                     if you are on-call provided that your duty
business kilometres in an income year.                        has begun at home.

Record keeping                                          Travel between jobs
To use this method you must make a reasonable           If you have more than one job you can claim a
estimate of business kilometres travelled and also      deduction for travel directly between the two jobs.
keep a record of all running costs for your car         You cannot claim travel between two places of
each year, such as registration, insurance,             work if you reside at either workplace.
servicing and financing repayments. As discussed

                                                                           FocusOn Motor Vehicle Expenses
Travel to visit Saward Dawson or the                  If no log book has been maintained and you use
Taxation Office                                       the cents per kilometre method to claim car
Travel to visit Saward Dawson or the Taxation         expenses for income tax, the percentage of input
Office can be claimed as a deduction. Due to a        tax credits which can be claimed for GST
recent tax ruling, if the claim was made using the    purposes is dependent on the number of
cents per kilometre method the travel is counted      kilometres travelled for work. The following table
towards the 5,000 business kilometre limit.           illustrates the percentage of GST claimable:

Sale of the car
                                                         Business Kilometres Travelled                       %
If at any time during the car’s ownership a claim
                                                         < 1,250 kilometres                                 5%
was made following the log book or one-third of
                                                         1,251 – 2,500 kilometres                          10%
actual expenses methods, the profit/loss on sale
                                                         2,501 - 3,750 kilometres                          15%
must be included in the income tax return in the
                                                         3,751 – 5,000 kilometres                          20%
year in which the car was sold. This is known as
a balancing adjustment and is calculated as the       If you claim motor vehicle deductions under the
difference between the sale proceeds and the          ‘12% of original value’ or ‘one-third of actual
written down value for depreciation purposes.         expense’ methods, you are entitled to claim one-
The balancing adjustment is apportioned               third of input tax credits on your motor vehicle
according to the business use of the car.             expenses.

Record keeping and claiming GST
If you are registered for GST, you will need to
keep all of your tax invoices in order to claim the
correct amount of input tax credits. If a log book
was maintained, the percentage of input tax
credits claimable is the log book business use
percentage. If the car has been used for both
earning business and employment income, this
percentage needs to be further apportioned for
business use only.                                    Further information
                                                      For further information please contact the
                                                      following staff member:

                                                      Simon Dinér 

                                                      Call our office on (03) 9894 2500

                                                      Liability limited by a scheme approved under Professional
                                                      Standards Legislation

                                                      Disclaimer: This publication has been prepared on the basis of
                                                      information available at the date of preparation. The
                                                      information is general in nature and is not to be taken as a
                                                      substitute for specific professional advice. We recommend that
                                                      our advice be sought on specific issues prior to acting on
                                                      transactions affected.

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