How to claim work-related car expenses at tax time
Whether you're issued a company car as part of your salary package or you intend to use your own car for work-related duties, doing your homework will ensure a better financial outcome.
The most important task when driving a company car or your own is to distinguish between business and private use. At tax time you can only claim work-related travel, excluding to and from your workplace.
Will Davies, chief executive at peer-to-peer car sharing platform Car Next Door, says if you're driving a company car or one purchased on a novated lease you should be careful not to "double dip" on your expenses.
"You can't claim expenses that have already been paid for by your employer, including salary sacrificing arrangements," he says.
However, if you receive an allowance from your employer for car expenses, it is regarded as assessable income and the allowance must be included on your tax return, says the Australian Taxation Office (ATO). "The amount of the allowance is usually shown on your income statement or payment summary," says the ATO.
Even though car expenses account for 40% of all work-related deductions, people continue to trip up at tax time. Surprisingly, some car owners may be claiming too little rather than claiming too much, says Davies.
"One of the most common mistakes is claiming car costs using the ATO's cents-per-kilometre method, without the records to back them up," he says. "You can claim up to 5000km a year at 68c per kilometre in the 2020 tax year, but this is not a 'free pass' - you must be able to provide documentation."
Many taxpayers also forget to claim depreciation. If you use your car for work or rent it out, ask your accountant how you should calculate depreciation as it may add thousands to your allowable deductions.
Davies says any money you earn from renting out your car is considered taxable income and must be declared on your return. However, you can claim expenses for the portion of your car costs that relate to the rental activity, or the 68c for every kilometre your car is driven by borrowers.
Car-share platforms should be able to provide you with a summary of all of the kilometres driven during bookings, to make it easy to claim.
Another area that often catches people when claiming car expenses is the carrying of tools. While you're entitled to claim for carrying tools or other equipment needed for your job, you have to prove you're required to do so by your employer, says Davies.
And the ATO has different rules for claiming deductions if you rent out a panel van, ute or other small cargo vehicle rather than a car.