Video transcript - Business deductions - Motor vehicle expenses
Most people use one or more vehicles in their business. How you claim motor vehicle expenses depends on whether you operate as either a company or trust, or as a sole trader or partnership.
If you operate your business through a company or trust, the company or trust can claim a full deduction for the operating expenses of the vehicle. If the vehicle is also used for private purposes, the company or trust may have to pay FBT.
If you operate your business as a sole trader or a partnership, you work out your motor vehicle deductions differently depending on whether the vehicles you use are business purpose vehicles or other vehicles.
Business purpose vehicles are larger trucks or vans.
So my ute isn’t a business purpose vehicle?
Jason’s ute is also a business purpose vehicle because although it’s a smaller vehicle he carries all his tools around in it and has modified it especially to take some of his equipment. So Jason can claim 100% of his vehicle costs without having to account for private use.
Greg and Fiona who run a website design business together at home use their own cars for business purposes such as visiting clients, banking and visiting their tax agent. Their business travel is not more than 5,000km so they can choose either the logbook or cents per kilometre method to work out their deduction.
Fiona uses the logbook method. As she and Greg both use their cars working for the partnership they must keep a logbook for each car for the same 12 week period within the income year.
At the end of the financial year Fiona’s logbook showed she had travelled 3,600km of which 2,700km were for business use. Fiona’s costs including depreciation were $6,000, and she can claim 75% of that which is $4,500.
Greg and Fiona could also use the cents per kilometre method and claim a set number of cents per each kilometre of business travel. They wouldn’t have to keep a logbook but the ATO might ask them to show how they calculated their business use.
If you travel more than 5000 business kilometres you can still use the logbook and cents per kilometre method. If you choose the cents per kilometre method you must limit your claim to 5,000 kilometres. In addition, you have two other methods to choose from.
You can use the 12% of original value method and claim 12% of the original value of your car, or if you lease it, 12% of its market value at the time you first leased it. Or you can use the one-third of actual expenses method and claim a third of your car expenses. To do this you must have written evidence of all of your expenses.
Whichever method you choose you must keep appropriate records. You must record the car’s odometer readings at the start and end of the period, as well as the make, model, engine capacity and registration number of the car.
When choosing a method remember, you can choose the method that gives you the best result, use different methods for different cars, and change methods from year to year.
To help you calculate how much you can claim, use our Work related car expenses calculator available on the ATO’s website.
This video explains when you can claim a deduction for motor vehicle expenses and how to work out your claim.