Motor Vehicle Tax Deductions: A Good Look

When it comes to tax deductions, understanding what can be claimed against your motor vehicle is crucial for optimising financial outcomes come tax-time. There’s little doubt that deductions relating to motor vehicles are some of the most common but how familiar are you with what you can claim and how?

By no means do you need to be an expert, but understanding what’s possible may help you make decisions about your vehicle during one tax year or another. So with that in mind, we thought we’d shed some light on what many deem one of the simpler tax deductions on the list …

To start with, the Australian Taxation Office (ATO) provides a comprehensive guide on motor vehicle expenses, offering clarity on what can be claimed by individuals for business purposes. But, the key to maximising deductions lies in understanding the different categories of claimable expenses.

1. Deductions for Car Ownership or Leasing

If you own or lease a car primarily for business purposes, you may be eligible to claim various expenses associated with its operation. These include:

• Fuel Costs: The expenses incurred on fuel for business-related travel can be claimed as a deduction. It's essential to keep detailed records to substantiate the business-related portion.
• Maintenance and Repairs: Any costs related to the maintenance and repair of the vehicle used for business purposes are claimable. Regular servicing, oil changes, and repairs fall under this category.
• Depreciation: As cars depreciate over time, individuals can claim a deduction for the depreciation of the vehicle's value. Calculating depreciation involves determining the cost of the car, its effective life, and the percentage of business use.
• Insurance Premiums: If the vehicle is insured for business purposes, the insurance premiums can be claimed as a deduction. This includes comprehensive insurance coverage.

2. Logbook Method and Operating Costs

The ATO provides two primary methods for claiming motor vehicle expenses: the logbook method and the cents-per-kilometre method.

Logbook Method: This method requires maintaining a logbook for at least 12 continuous weeks, detailing all travel, to determine the percentage of business use. Once the percentage is established, it can be applied to relevant expenses like fuel, maintenance, and depreciation and can be relevant for up to 5 years if your travel circumstances don’t change much.

Cents-per-Kilometre Method: An alternative is the cents-per-kilometre method, where a standard rate is applied to business kilometres travelled. While simpler, it may not accurately reflect the actual expenses incurred.

3. Parking and Toll Expenses

In addition to the operating costs, parking fees and toll expenses directly related to business travel are also claimable. Keeping detailed records of these expenses is vital for accurate deductions and to avoid penalties if questions are asked later.

4. Eligibility Criteria and Documentation

It's crucial to meet certain eligibility criteria to claim motor vehicle expenses. The vehicle must be used for business purposes, and accurate records must be maintained to substantiate the claims. Documentation should include receipts, invoices, and a comprehensive logbook if using the logbook method. There’s more detail in this criteria worth discussing with the Attune team when lodgements are being prepared.

5. Seek Professional Guidance

Navigating the nuances of motor vehicle tax deductions can be complex depending on your situation, and seeking professional guidance is always the way to go. Our  expertise in tax planning and compliance means we’re ready to assist you as an individual and business owner in optimising your tax outcomes through tailored, strategic advice.

If you’d like to discuss your tax position, or specifically the structure of your vehicle as part of your tax, reach out to the Attune team on 1300 866 113 or send us an email to start the conversation, you’ll be glad you did.

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