Claiming 'motor vehicle' expenses as a tax deduction is an area fraught with danger for many taxpayers. You must retain sufficient records to claim 'motor vehicle' expenses on your tax return and survive a tax office review. The other area that confuses taxpayers is what vehicles qualify as 'motor vehicles'.
If you’re in your 60s, this year’s federal Budget brings some good news: the Coalition is relaxing some of the contributions rules for your age group, giving you more time and opportunities to put away funds for retirement.
If you have special car travel needs for work – like driving between two jobs or different worksites, or carrying bulky equipment – you may be able to claim deductions for some of your car expenses. Are you claiming everything you’re entitled to? Find out what expenses you can deduct and how to correctly calculate your claim.
Car expense claims are one of the most popular deductions claimed by individuals at tax time each year, but the ATO says not everyone gets it right. Make sure you know the basic rules for when and how you can make a claim.
These rules apply to a car you own or lease that is designed to carry a load of less than one tonne and fewer than nine passengers. Motorcycles, bigger cars and cars hired intermittently (eg a car hired for a week) have different rules.
What car travel can I claim for?
Generally, you can’t deduct costs of travelling between home and your regular workplace. However, you can claim for car travel between two different workplaces or between your home and an alternative workplace that is not your usual workplace (eg a client’s premises).
You’re also entitled to claim for travel if you need to drive your own car as part of your job. This might include:
delivering or collecting items for your employer (but not minor work tasks such as visiting the post office as part of your trip home);
attending work-related events like meetings or conferences; or
transporting bulky tools or equipment to work (eg an extension ladder) that your employer requires you to use on the job, provided there is no secure place to leave them at your workplace.
Calculating your claim
There are two methods for calculating your claim.
You’re free to choose the method that best suits you, and you can choose different methods for different income years.
The simplest is the “cents per kilometre” method, which allows you to claim at a rate of 68 cents per kilometre travelled for work purposes (for 2018–2019). This rate is set by the ATO and is considered to reflect average operating costs, including depreciation. There are some key points to know about this method:
You can only claim a maximum of 5,000 kilometres each year, which equates to a maximum deduction of $3,400 (and averages to around 104 kilometres a week for someone working 48 weeks a year).
You don’t need to keep any expense receipts.
However, you need to be able to demonstrate how you made a reasonable estimate of your work-related kilometres (for example, using a diary showing work trips you made). The ATO stresses that this is not a “standard” deduction and taxpayers must be able to prove their entitlement.
The alternative method is the “logbook method”, which allows you to claim a percentage of your actual car expenses based on work use. This method requires more record-keeping, but may be worthwhile if it gives you a bigger deduction. You should note:
Your work-related percentage is your work-related kilometres as a proportion of total kilometres travelled. To calculate these figures, you must keep a logbook and odometer readings that must record certain information. Fortunately, once you’ve maintained a logbook for the required 12-week period, it’s valid for five years (unless your work-related proportion significantly changes and this requires a new logbook to be started).
You also need to keep receipts to show your actual expenses, although petrol and oil costs can be based on either actual costs or a reasonable estimate based on odometer readings.
Expenses you can claim include running costs (fuel, servicing), registration, insurance and decline in value, but not capital costs.
Claim with confidence
Car expense deductions require careful record-keeping. In particular, getting your 12-week logbook right is essential to ensuring it remains valid for five years. We’re here to help. Our expert team can check whether you’re claiming your full entitlements and ensure your records will stack up in the event of an ATO audit.
With a federal election just around the corner, both major parties have put personal tax breaks front and centre of their Budget plans. Make sure you understand each party’s tax policy as you head to the polls this autumn.
Many homeowners are not aware that the “main residence” rules exempting the family home from capital gains tax (CGT) are in fact quite complex and contain many traps. It pays to be aware of the main residence rules and to plan ahead accordingly.
Australia’s growing “sharing” economy provides many opportunities to make extra income. However, this will generally give rise to additional tax obligations, and accommodation sharing sites like Airbnb are no exception.
The government’s new measure to allow those with less than $500,000 in superannuation to “catch up” on missed superannuation contributions is a great opportunity for anyone who takes time out of work or otherwise has “lumpy” income that means they have a varying capacity to make contributions from year to year.
The government’s new opportunity for “downsizing” Australians to contribute some of the sale proceeds from their home into superannuation may appear to be a very attractive strategy for many individuals who wish to use equity in their home to boost their retirement savings.
An extra 44,000 taxpayers have been hit with an additional 15% Division 293 tax on their superannuation contributions for 2017-18. The ATO has issued these Div 293 tax assessments to a further 90,000 taxpayers after an initial run in late 2018.
The ATO is on the lookout for holiday home owners who may be over-claiming their expenses. Where a property is used partly for private purposes and partly to earn rental income, it is essential to identify what proportion of the income year is attributable to each use. Importantly, some property owners may be over-claiming their expenses because their property is not “genuinely available” for rent, despite the property being advertised to some extent.
Renting out your holiday home for part of the year can help to finance the costs associated with purchasing and maintaining the property. As well as providing an income stream, this will also allow you to deduct some of the expenses such as interest payments on a loan you have taken out to buy the property, repairs, cleaning services, council rates and insurance. Last year the ATO announced it will scrutinise holiday home deductions because of concerns that some taxpayers with mixed-use properties are over-claiming. Holiday home owners should therefore ensure they understand the ATO’s guidance on claiming deductions.
The basic rules
Your total expenses relating to the property for an income year should be apportioned on a time basis, ie how much of the income year the holiday house was rented out. You should apportion between three time periods:
When it was rented out or genuinely available for rent – you may deduct a proportion of your expenses equal to this proportion of the year. For example, if your holiday house was rented out (or available for rent) for 80% of the year, you may deduct 80% of your expenses.
When it was used privately by you, or by family, relatives or friends free of charge – you may not deduct the proportion of expenses that relates to this private use period.
When it was rented out to family, relatives or friends below market rates – you may deduct a proportion of your expenses equal to this proportion of the year, but only up to the amount of rent actually received during this period. That is, the dollar amount of total deductions claimed in respect of this period cannot exceed the dollar amount of rental income received.
If your expenses are not fully deductible today, they may be taken into account if you make a capital gain when you eventually sell the property. The proportion of expenses that you are not able to deduct now may reduce the size of the future capital gain.
“Genuinely available” for rent
You may deduct expenses for a period when the holiday home is not rented out but is “genuinely available” for rent. However, the ATO is concerned that some taxpayers have been incorrectly claiming deductions for properties that are not genuinely available. The ATO considers the following to be indicators that a taxpayer does not have a genuine intention to make income from their property:
Setting a rental rate that is above market rates.
Using the property for private use during high-demand periods, and only making the property available to rent when there is little or no demand for the property.
Failing to advertise the property to a wide audience. (Advertising to restricted social media groups, at your workplace or by word-of-mouth is considered insufficient.)
Placing unreasonable conditions on prospective tenants, such as requiring tenants to provide references for a short holiday stay.
Turning away prospective tenants without providing adequate reasons.
Check your holiday home expenses
Given the ATO’s compliance focus in this area, it is vital that holiday home owners maintain good records and ensure they are not over-claiming deductions. Contact us to discuss your property and review your expenses. We can also check whether you have any additional deductible expenses that you might have previously overlooked.
The government has created a new opportunity for some recent retirees to make additional superannuation contributions. From 1 July 2019, a 12-month exemption from the “work test” for newly retired individuals aged between 65 and 74 years with a total superannuation balance below $300,000