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Claiming vehicle expenses as a small business

It can be hard to navigate the rules around vehicle deductions if you’re a small business owner. Whether you use an accountant or lodge your own tax return, this information will help you when claiming deductions for motor vehicle expenses for your business.

Types of vehicles

Firstly, it is important you are aware of the ‘types’ of motor vehicles, as some vehicles are calculated differently.

Car Other vehicles
A ‘car’ is a motor vehicle that is designed to carry:

  • a load of less than one tonne
  • fewer than nine passengers.
  • motorcycles
  • minivans capable of carrying nine or more passengers
  • utes or panel vans designed to carry loads of one tonne or more.

What you can claim

Common types of expenses you can claim include:

  • fuel and oil
  • repairs and servicing
  • interest on a motor vehicle loan lease payments
  • insurance
  • registration
  • depreciation (decline in value) of the vehicle, not the purchase.

The way to calculate your claim depends on your business structure which affects your entitlements and obligations. You must apportion your expenses between business and private use.

If you are a sole trader or partnership you can only claim motor vehicle expenses that are part of the everyday running of your business (such as travelling between different business premises). If the vehicle is used for both private and business purposes, you must exclude any private use (such as driving your children to school). The vehicle can be owned, leased, or hired under a hire purchase agreement.

Measuring business use

There are two ways to measure your business related use. For cars, you can use the cents per kilometre method or the logbook method

1. Cents per kilometre method (under 5,000km)

The rate per kilometre (68 cents in 2018–19) takes into account your car running expenses, including depreciation. You can’t make a separate claim for depreciation of the car’s value. You must be able to show how you worked out your business kilometres, with a calendar or diary records, for example.

2. Logbook method (over 5,000km)

You can claim the business use percentage of each expense, based on logbook records. You must keep the logbook for a period (at least 12 continuous weeks) that is representative of your travel throughout the year. Work out the percentage of business travel from your logbook and use this to claim your business related car expenses.

You must record:

  • when the logbook period begins and ends
  • the car’s odometer reading at the start and end of the logbook period
  • details of each including
    • start date and finishing date
    • odometer readings at the start and end
    • kilometres travelled
    • reason for the journey.

Other vehicles and measures

For all ‘other’ vehicles, you can’t use the cents per kilometre or logbook method. Your claims must be for actual costs for expenses you incurred, based on receipts. You can use a diary or journal to separate private use from business use.

If you operate your business as a company or trust you cannot use the cents per kilometre or logbook method to calculate your claim. You can only claim the actual costs for motor vehicle expenses that are part of the everyday running of your business. Actual costs are based on receipts for expenses incurred.

If you’re a sole trader with simple tax affairs, you can use the myDeductions tool in the ATO app to keep a logbook and record business related car trips and other car expenses. For more information, see ato.gov.au/mydeductions

 

You must keep records for five years to prove your expenses. To see a range of logbook apps visit our blog ATO approved logbook apps. If you’re unsure about recording or claiming travel deductions we can help. Call 03 5443 0344.