A car expense for income tax purposes is a loss or outgoing to do with a car, including operating costs and depreciation.
A work-related car expense claim is a tax deduction in relation to a car which is used for business or income producing purposes. In principle, travel directly between home and place of work, and the return trip are considered to be not deductible, but there are exceptions – Travel between home and work.
Generally, eligible cars must be owned (including under finance) or leased. Motor cycles, taxis on hire or non-continuous car rentals are not covered by these rules.
The rules which set out how car claims can be made are referred to as the car expense substantiation(1) rules. The rules cover most circumstances, but there are some exceptions.
If you hate record-keeping, you will probably want to choose the method involving the least amount of record-keeping effort – the Cents Per Kilometre method.
Each year you are allowed to choose the claim method which gives you the best result. The best result for a particular year is not necessarily the biggest claim. For example, you can consider next year events, or likely events, such as the sale of a vehicle, or a significant change in circumstances.
Vehicle claim methods (2)
Car expense claim methods are:
(2)For years up to 30 June 2015, the following methods were also available:
Each method requires you to make come form of estimate of your business kilometres for the year.
There are also specific rules for:
- exemptions from the car expense substantiation rules, and how they are treated
- depreciation claims based on the cost of the car
- what happens when a car is sold
The substantiation rules only apply to natural persons, including partnerships but not companies or trusts for which claims must be made on an actual costs basis relying on appropriate records. In most cases this would be satisfied by using the log book method. See further: Actual costs method.
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Travelling expenses for employees – new ruling TR 2017/D6
Updated guidance (June 2017): The Tax Office has issued a draft ruling on deductions for employees’ travel expenses (TR 2017/D6) which deals with deductibility of expenses relating to:
• transport by airline, train, car, bus or other vehicle; and
• accommodation, meal and incidental expenses of an employee when they travelling away from home for work.
The ruling is intended to apply to periods both before and after its date of issue, and is open for comment until 11 August 2017.
For detailed analysis of the impact of this draft ruling see here.
This page was last modified 2019-10-15