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Ruling

Subject: insurance excess

Question 1

Are you entitled to a deduction for a portion of the insurance excess amount if claiming your car expenses using the logbook or one-third of actual expenses method?

Answer

Yes.

Question 2

Are you entitled to a deduction for the insurance excess amount if claiming your car expenses using the cents per kilometre or 12% of original value method?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts

You had a car accident when transporting work materials from your employer's home to a work site.

The cost of repairs to the other vehicle was covered by insurance, however you had to pay $XXX excess to the insurance company in respect of the repairs to your car.

You use your car for work related and private purposes.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 28-12

Income Tax Assessment Act 1997 Section 28-13

Income Tax Assessment Act 1997 Section 28-15

Income Tax Assessment Act 1997 Section 25-10.

Reasons for decision

Work related car expenses are deductible under section 28-12 of the Income Tax Assessment Act 1997 (ITAA 1997) using one of the four methods set out in Division 28 of the ITAA 1997.

A car expense is a loss or outgoing to do with a car (subsection 28-13(1) of the ITAA 1997). Car expenses can include insurance premiums and repairs.

The portion of specific car expenses able to be claimed depends on the method used.

As stated in section 28-15 of the ITAA 1997, you may choose the method that best suits your situation and needs. For substantiation purposes, each method has different requirements that must be met. 

The four statutory methods are:

· cents per kilometre,

· 12% of original value,

· one-third of actual expenses, and

· log book.

Where your car expenses are claimed using the one-third of actual expenses or log book method, the expense must qualify as a deduction under some provision outside Division 28 of the ITAA 1997.

Section 25-10 of the ITAA 1997 allows a deduction for the cost of repairs to premises or a depreciating asset held for income producing purposes, provided the repairs are not of a capital nature. Where an asset is used only partly for income producing purposes, only a portion of the expenditure is an allowable deduction.

A car is regarded as a depreciating asset. Repairs to a person's car are generally an allowable deduction under section 25-10 of the ITAA 1997 to the extent it is used for the purpose of producing assessable income.

In your case, you use your car for income producing purposes as well as for private purposes. Therefore only a portion of the cost of your car repairs is an allowable deduction.

As stated above, the amount of this expense that can be included as an allowable deduction depends on which method you use to calculate your car expenses.

Cents per kilometre method

If you elected to use the cents per kilometre method you calculate your deduction by multiplying the total number of business kilometres your car travelled in the income year by the number of cents based on your cars engine capacity. The number of business kilometres is limited to the first 5,000. Any business kilometres travelled in excess of 5,000 is disregarded.

The cents per kilometre rate takes into consideration all expenses of a car, including services and repairs, registration and fuel. Therefore the effect of Division 28 of the ITAA 1997 is that no separate deduction is allowable in respect of incurred car expenses, where the cents per kilometre basis of deduction applies. That is, no additional deduction amount is allowed for your insurance excess if using the cents per kilometre method.

12% of original value method

Where the income-producing use of your car during the year of income exceeds 5,000 km, an amount of 12% of the original cost of the car is allowable if using this method.

Similarly to the cents per kilometre method, when using this method, no additional amount is allowed for individual car expenses such as your insurance excess.

One-third of actual expenses method

You can use the one-third of actual expenses method if the income-producing use of your car during the year of income exceeds 5,000 km.

Therefore one-third of your insurance excess is included in the calculation of your car expenses when using this method.

Log book method

The log book method allows you to claim the portion of allowable car expenses based on the business use percentage of your car. You need a log book, so you can work out that percentage. You also need to keep odometer readings for the start and end of the period you owned the car during the financial year.

Therefore, if using the log book method, your insurance excess is included as an allowable car expense and you are entitled to the business use percentage of the excess.