By: Max Newnham
There is a misconception that it is easier to claim a tax deduction for expenses in a business rather than as an employee. Nothing could be further from the truth. Just because a person runs a business does not make it any easier to claim expenses, especially with regard to claiming motor vehicle costs.
Over recent years the choices available to claim motor vehicle expenses has been made simpler. Prior to July 1, 2015, there were four methods that could be used, from the 2016 financial year on there have been only two methods to claim motor vehicle expenses.
The two methods, whether that be for an employee or by a business, are the cents per kilometre method and the logbook method.
The cents per kilometre method has been made simpler and the amount claimable as a tax deduction reduced. Previously the cents per kilometre claimable differed depending on the engine size of a car up to a maximum of 77¢. Now there is only one rate for all cars of 66¢.
Under the cents per kilometre method the tax deduction is calculated by multiplying the number of business kilometres driven in a year, up to a maximum of 5000 kilometres, by the 66¢. No documentation must be kept but, if challenged, a taxpayer must be able to demonstrate how they arrived at the number of kilometres driven.
The logbook method can in some circumstances result in a higher amount claimable. This will depend on the business percentage, the cost of the car purchased, and the annual running costs. A logbook must be kept for 12 weeks with the following details recorded:
- date trip was started and completed
- opening speedo reading
- closing speedo reading
- kilometres travelled
- purpose of the travel
Q. I am employed part-time for 18 hours a week but in addition to that I have my own small secretarial and odd jobs business. I project earnings of around $10,000 a year from my business and want to purchase an inexpensive vehicle solely for this. Can I claim my repayments or interest off my tax? I have been reading up on what is allowable but I find it a bit confusing.
A. The short answer to your question, as to what you will be able to claim, will depend on the type of finance you use. If you use a lease you can claim the business use percentage of those payments. If you use hire purchase or a similar finance you can claim the business use percentage of the interest and the depreciation of vehicle.
You will need to keep a logbook for the 12 weeks to calculate what your business use is. If you are able to show that you drive 5000 kilometres a year on business you would be able to claim $3300.
For it to be worthwhile keeping a logbook for the 12 weeks, that would show your business use of the car is 100 per cent, you would need to have car expenses totalling more than $3300.
Source: The Sydney Morning Herald
