The ATO have announced that they will be closely examining a number of work related deductions, one of which is the Motor Vehicle claims where taxpayers take advantage of the 68 cents per kilometre for work related travel up to 5,000kms work related car expenses.
Assistant Commissioner Kath Anderson said over 3.75 million people made a work-related car expense claim in 2016–17, totaling around $8.8 billion. “That’s a lot of money and Australians expect us to ensure people are not over-claiming.”
“While most people want to do the right thing, we know the rules can be a bit tricky for some and we are seeing a lot of mistakes. We are particularly concerned about taxpayers claiming for things they are not entitled to, like private trips, trips they didn’t make, and car expenses that their employer paid for or reimbursed.”
So, let’s talk about how to ensure that your motor vehicle claim is ATO audit proof.
When calculating motor vehicle deductions, you may use two methods; the cents per kilometre method or the logbook method.
Cents Per Km Method
It’s true that claims of up to 5,000 kilometres under the cents per km method do not require a log book. However, you still need to have done the kilometres as part of your job and be able to show how you calculated your claim, for example by keeping a diary of places you have had to drive to for work, and how often.
If you are claiming more than 5,000 kilometres you will need a log book and records of all of your motor vehicle expenses.
A log book is required to be kept for at least 12 continuous weeks during the financial year, and that 12-week period needs to be representative of your travel throughout the year (i.e. you cannot choose to keep your log book in a 12 week period where you drove a significant number of work related kms when you drove significantly less during the rest of the year)
Your logbook must contain:
- when the logbook period begins and ends
- the car’s odometer readings at the start and end of the logbook period
- the total number of kms the car travelled during the logbook period
- the number of kms travelled for each journey. If you make two or more journeys in a row on the same day, you can record them as a single journey
- the odometer readings at the start and end of each subsequent income year your logbook is valid for
- the business-use percentage for the logbook period
- the make, model, engine capacity and registration number of the car.
For each journey, record the:
- reason for the journey (such as a description of the business reason or whether it was for private use)
- start and end date of the journey
- odometer readings at the start and end of the journey
- kilometers travelled
I know it sounds like a lot of work but the good thing is that the logbook is valid for five years; (however, you may start a new logbook at any time) and there are a lot of Log Book Apps out there to help, for example here’s a link to GeersSullivan’s App http://www.gscpa.com.au/our-app/.
If your circumstances change, such as a change in the type of work undertaken by your business, you may need a new logbook.
In additional to your log book you must also have evidence of:
- your actual fuel and oil costs, or odometer readings on which you estimate your fuel and oil use
- evidence of all your other car expenses including:
- repairs and servicing
- lease payments
The ATO has been investigating tax payers that are claiming expenses that they have been reimbursed for, so it is also a good idea to ensure you keep your bank statements so that you can prove you incurred the expense yourself and were not subsequently reimbursed.
Now that we have determined what you need to be able to make a motor vehicle claim, let’s look at what travel is actually deductible.
What You Can Claim
You can claim the cost of travelling:
- directly between two separate workplaces – for example, when you have a second job (if one of these places isn’t your home)
- from your normal workplace to an alternative workplace that is not a regular workplace (for example, a client’s premises) while still on duty, and back to your normal workplace or directly home
- if your home was a base of employment – you’re required to start your work at home then travel to a workplace to continue your work for the same employer
- if you had shifting places of employment – you regularly work at more than one site each day before returning home
- from your home to an alternative workplace that is not a regular workplace for work purposes, and then to your normal workplace or directly home. This doesn’t apply where the alternative workplace has become a regular workplace
- if you need to carry bulky tools or equipment that your employer requires you to use for work which you can’t leave at your workplace – for example, an extension ladder or a cello.
What You Can’t Claim
You can’t claim the cost of driving your car between work and home just because:
- you do minor work-related tasks – for example, picking up the mail on the way to work or home
- you have to drive between your home and your workplace more than once a day
- you are on call – for example, you are on stand-by duty and your employer contacts you at home to come into work
- there is no public transport near where you work
- you work outside normal business hours – for example, shift work or overtime
- your home was a place where you ran your own business and you travelled directly to a place of work where you worked for somebody else
- you do some work at home.
If you have any questions in relation to your motor vehicle claim please contact our office on (08) 9316 7000.