ATO Interpretative Decision

ATO ID 2002/161 (Withdrawn)

Income Tax

• This ATO ID is a straight application of the law and does not contain an interpretative decision.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Can a taxpayer, who travels more than 5000 kilometres for business purposes, use the 'one-third actual expenses' method to calculate their car expense deduction under Subdivision 28-E of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes. A taxpayer who travels more than 5000 kilometres for business purposes can use the 'one-third actual expenses' method to calculate their car expense deduction under Subdivision 28-E of the ITAA 1997.

Facts

The taxpayer owns a car and uses it for business purposes.

In the current income year, the taxpayer travelled in excess of 5000 business kilometres.

The taxpayer has incurred car expenses in the course of earning their assessable income. These car expenses included:

•

Fuel

•

Oil

•

Repairs

•

Servicing fees

•

Registration fees

•

Insurance premiums

•

Depreciation

Reasons for Decision

Division 28 of the ITAA 1997 sets out the rules for working out a taxpayer's deduction for car expenses. Section 28-12 of the ITAA 1997 states:

(1)

If you owned or leased a car or hired a car under a hire purchase agreement, you can deduct for the car's expenses an amount or amounts worked out using one of the four methods.

(2)

You must use one of the 4 methods unless an exception applies. If you can't use any of the methods, you can't deduct anything for the car expenses.

The four statutory methods of calculating deductions are:

•

'cents per kilometre' method (Subdivision 28-C of the ITAA 1997)

•

'12% of original value' method (Subdivision 28-D of the ITAA 1997)

•

'one-third of actual expenses' method (Subdivision 28-E of the ITAA 1997)

•

'log book method' (Subdivision 28-F of the ITAA 1997).

A car expense is a loss or outgoing to do with a car, or operating a car and depreciation of a car (section 28-13 of the ITAA 1997).

Section 28-70 of the ITAA 1997 provides that under the 'one-third of actual expenses' method the taxpayer can deduct one-third of each car expense incurred during the income year. However the car expense must qualify as a deduction under some provision outside of Division 28 of the ITAA 1997 before it is deductible under subsection 28-70(1) of the ITAA 1997.

To use the 'one third of actual expenses' method, the taxpayer must have travelled more than 5000 business kilometres. Business kilometres are kilometres the car travelled in the course of producing the taxpayer's assessable income and the taxpayer can calculate them by making a reasonable estimate (section 28-75 of the ITAA 1997).

Section 28-80 of the ITAA 1997 requires the taxpayer to substantiate the expenses under Subdivision 900-C of the ITAA 1997.

The car expenses were incurred by the taxpayer in the course of earning their assessable income and would be deductible under provisions of the ITAA 1997 other than Division 28. As the taxpayer has travelled more than 5000 business kilometres they are entitled to use the 'one third of actual expenses' method. The taxpayer is therefore able to deduct one third of each car expense.

Legislative References:
Income Tax Assessment Act 1997
   Division 28
   Subdivision 28-C
   Subdivision 28-D
   Subdivision 28-E
   Subdivision 28-F
   section 28-12
   section 28-13
   section 28-70
   subsection 28-70(1)
   section 28-75
   section 28-80
   Subdivision 900-C

Keywords
Motor vehicle expenses
Substantiation
Motor vehicle use substantiation

Business Line:  Small Business/Individual Taxpayers

Date of publication:  8 February 2002

ISSN: 1445-2782