By: Max Newnham
Businesses registered for GST can claim input tax credits, the GST included in payments, and reduce the amount of GST collected that must be paid to the ATO. When payments relate 100 per cent to business items, such as stock purchases, the amount of input tax credit claimable is one-eleventh of the amount paid.
When a business payment has both business and private usage components the input tax credit claimable is restricted to the business use percentage. One of the most common expenses with mixed business and private usage is motor vehicle costs.
When the GST was introduced the percentage claimable of motor vehicle costs was based on the method used to claim a tax deduction. If the logbook method was used the business use percentage, as calculated over the 12-week logbook period, is the percentage used for claiming input tax credits included in car costs.
If the set rate kilometre method was used the percentage of the input tax credit claimed differed depending on the number of kilometres driven. The percentage claimable rates were:
- 5 per cent for up to 1250 kilometres driven,
- 10 per cent for 1251 up to 2500 kilometres,
- 15 per cent for 2501 up to 3750 kilometres, and
- 20 per cent for 3751 up to 5000 kilometres.
Under the two other methods for claiming motor vehicle expenses, being the one-third of actual expenses or the 12 per cent of purchase value method is, one-third of input tax credits included in payments could be claimed.
From July 1, 2015, the methods for claiming car expenses have been reduced to just the logbook method and the set rate kilometre method. After searching the ATO website I have been unable to find whether there has been a change in the methods that can be used for claiming input tax credits.
I am hoping that in next week’s article I will have heard back from the ATO as to whether all of the above methods for claiming input tax credits still apply.
Q. I am confused about how I claim the GST included in my car expenses. If my business use percentage is 20 per cent because I drive 5000 kilometres a year, would this would mean I claim this percentage of the $3300 tax deduction resulting in me claiming GST of $660? Also, does this mean I can only claim a tax deduction for $2640 after the GST credit of $660?
A. When the set rate kilometre method is used for claiming a tax deduction for car expenses, the amount claimed of input tax credits included in car costs does not affect the tax deduction.
The claim for input tax credits is not based on the tax deduction using the set rate kilometre method, instead it is based on the relevant percentage of actual car expenses. This means for you to claim input tax credits, as long as you are registered for GST, you will need to calculate the actual car running costs and claim the relevant percentage of these.
Source: The Sydney Morning Herald
