Tax season can be quite a headache for anyone, no matter who you are or where you’re from. Besides the paperwork, parting out with your hard-earned money to pay taxes can also sting. Thankfully, business owners can claim some of their motor vehicle expenses as tax deductions.
The Australian Taxation Office (ATO) allows business owners to claim several motor vehicle expenses as tax deductions. The deductibles include fuel, repairs, insurance, and depreciation.
You can calculate your deductions using the standardised 'cents per km' method, the logbook method, or the actual costs method. When done correctly, you could potentially enjoy significant tax savings.
Remember: it’s always best to refer directly to the Australian Taxation Office (ATO) registered tax agent when it comes to tax matters. This article is only for educational purposes to help you understand some of the tax deduction options you can explore.
With that out of the way, let’s get started.
What Methods Can You Use to Deduct Car Expenses on Taxes?
The Australian Taxation Office (ATO) allows you to claim tax deductions for motor vehicles that you use for business purposes.
The deductions could be for cars or utes and 4WDs that fit the ATO’s definition of a ‘car’. Besides that, you can also claim deductions for motorcycles, minivans, and panel vans.
Your tax deductions can also be for vehicles you use for personal and business reasons. Again, however, you’d have to keep precise records in a journal or diary to separate your personal and business uses of that vehicle.
Using a car tax deduction calculator helps give you a rough estimate of how much you can get in deductions. However, it’s always best to do the calculations manually or hire a registered tax agent to do it for you. That way, you minimise the mistakes in your tax filing.
There are three methods that you can use to calculate your tax deductions:
Method 1: The Cents Per Km Method
When you use the Cents Per Km method, you’re calculating your tax deductions using a standardised rate set by the ATO for that tax year. That rate is then applied to how far you drive that vehicle for business purposes.
The idea here is that the standardised rate includes all the expenses involved with owning and operating the vehicle, like:
- Registration
- Insurance
- Fuel
- Repairs
- Depreciation
As you can imagine, this method makes it much easier for you to calculate your deductions. In addition, you’ll be able to claim all your expenses using an all-in-one price instead of doing so separately.
Method 2: The Logbook Method
The second method is the logbook method. This approach will give you a more accurate calculation than the first method, but it does involve a lot more work. The tradeoff is that your deductions could end up being a lot higher.
The logbook method involves keeping a detailed and compliant logbook of your travels, including receipts or invoices for expenses. Your records must cover at least 12 consecutive weeks, though it's better to keep a record for the whole year.
This method doesn’t require receipts for fuel and oil. Instead, those items can be estimated based on odometer readings taken at the beginning and end of the logbook period.
Method 3: The Actual Costs Method
The third and final method is the actual cost method. This approach is similar to the logbook method but stricter and more detailed.
Firstly, this method requires you to keep a compliant logbook like in method 2. More importantly, you must also keep receipts for all expenses like fuel and oil.
What Car Expenses Can I Deduct on My Taxes?
According to an infographic by the Australian Taxation Office (ATO), these are the typical expenses you can claim as tax deductions:
- Fuel and oil
- Repairs and servicing
- Interest on a motor vehicle loan
- Lease payments
- Insurance
- Registration
- Depreciation (decline in value)
Can You Claim Car Repairs on Tax in Australia?
Yes, based on the list above, car repairs and servicing are claimable as tax deductions on your motor vehicle if it’s used for business purposes.
The same is also true for fuel, oil, and insurance expenses.
Are Car Parts Tax Deductible?
With car repairs and servicing costs deductible, it's only natural to ask whether car parts are also tax-deductible.
Unfortunately, there is no clear answer to this.
Sure, it’s clear that repairs are deductible, and you could assume that auto parts are included in those repair costs.
However, it’s always best not to make assumptions regarding tax matters. So, if you’d like to include car parts in your deductions, be sure to check with the Australian Taxation Office (ATO) or your registered tax agent first.
Can I Claim My Car Purchase on Tax in Australia?
Among the motor vehicle expenses the ATO allows you to claim tax deductions on, the purchase cost is tricky.
If you’re using the logbook method or actual costs, you can claim capital costs like the vehicle's purchase price but only as depreciation.
In other words, you can claim the car purchase but only over a period of time.
To learn more about car ownership in Australia, check out the Blog at CarpartAU. You can learn from plenty of helpful articles teaching you everything you need to know to become a more responsible car owner.
By Ray Hasbollah