One Third Of Actual Expenses Method*
This is one of the four substantiation methods for a work-related car expense tax deduction claim.
* this claim method has been removed from 1 July 2015
The following information relates to the position before 30 June 2015.
This method may only be used when at least 5,000 business kilometres (actual or annualised) have been travelled. The business kilometres can be determined as a reasonable estimate, but both opening and closing odometer readings must be kept.
This method is similar to the log book method, in that they both allow a percentage claim of expenses, the One Third method being fixed (at one third).
This claim is calculated as one-third of the operating car expenses for the period, including depreciation. Car parking fees and tolls are not considered to be ‘car expenses’ and can be claimed separately. The purchase costs of a car cannot be claimed, but a depreciation allowance is included in the operating expenses.
Claimable expenses must relate to the period of ownership or leasing, and the period of related business activity. Claimable expenditure includes operating or recurring expenses, such as:
- Fuel and oil
- Maintenance & repairs
- Insurance and licensing
- Financing costs (e.g. interest)
- Leasing fees, except for Luxury Cars for which the leasing costs are replaced by a depreciation claim using the capped depreciation limit plus finance costs
Expenses must be fully substantiated. This means having documentary (i.e. written) evidence available to support the claims, except for fuel and oil which may be estimated if receipts haven’t been kept.
Fuel and oil expenses can be claimed on the basis of a ‘reasonable estimate’. The Tax Office has provided specific guidance on this in Tax Determination TD97/19.
The key points in summary are:
- Records of odometer readings are required to support the kilometres travelled, including start and end of the period of ownership or lease
- Records should also show the car’s engine capacity, make, model and registration number
- Average fuel costs can be based on Australian Bureau of Statistics data for capital cities or from another independent source in other places e.g. see AAA fuel prices
- Average fuel consumption may be based on based on the Green Vehicle Guide Fuel Calculator
It is open to a taxpayer to prove higher costs or consumption than the above sources indicate, if the evidence can be produced. For example, verifiable data based on local conditions or special circumstances.
Note that when a car claimed for under the One Third of Actual Expenses method is sold, lost or destroyed, a ‘balancing charge’ adjustment might need to be calculated for your tax return for the year of disposal.
For other claim methods see Work Related Car Expenses
This page was last modified 2018-12-11