There are four methods of claiming motor vehicle costs, and one commonly used by our clients is the 'cents per kilometre' method. It requires minimal record keeping and can result in a significant tax deduction.
What does this method involve?
It requires a fair and reasonable estimate of business* kilometres travelled up to a maximum of 5,000kms. This number is then applied to a rate as determined each year by the ATO which is based on the engine capacity of the car being used - the idea being that the larger the engine the higher the running costs. The 2013 tax year rates are below. It is important to note that this claim covers the entire deduction available for the motor vehicle, you cannot make a separate claim for any costs or depreciation (this includes SBE depreciation deductions).
*what is business travel? This may deserve an entire blog post of it's own, but for the majority of taxpayers it will be travel between workplaces, travel between work and client premises, but will not include any trips to/from your home unless you're required to carry substantial amounts of heavy equipment.
What records are required?
The ATO doesn't necessarily require written records to make the claim as it does under the other methods (e.g. logbook), however if they chose to review you may be required to provide the following:
- purchase or lease documents for the car for which your client is claiming a deduction
- evidence, such as diaries, to show that business kilometres were reasonably calculated
- car registration certificate or papers for the period that your client is claiming car expenses
- details of the business travel undertaken during the income year, from such sources as work diaries. These details may include the purpose of the travel undertaken, the frequency of any work-related travel, and the number of kilometres travelled for work-related purposes. If travel undertaken between your client's home and place of work is included, your client must be able to show why such travel is deemed to be business travel.
What are the relevant rates?
- Ordinary engine - 1.6L or less - 63 cents per km
- Ordinary engine - 1.6L-2.6L - 74 cents
- Ordinary engine - 2.6L or more - 75 cents
- Rotary engine - 0.8L or less - 63 cents
- Rotary engine - 0.8L - 1.3L - 74 cents
- Rotary engine - 1.3L or more - 45 cents
More information is available here. Any questions relating to your specific situation should be directed toward your accountant.