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Ruling

Subject: Deduction for motor vehicle expenses

Question

Are you entitled to a deduction for work-related car expenses for the use of a car after your employment was terminated?

Answer

No

This ruling applies for the following period:

Year ended 30 June 2013

The scheme commences on:

1 July 2012

Relevant facts and circumstances:

You own a motor vehicle which you use for private use and also had used in connection with your work.

You were made redundant from your employment and your employment was terminated and you received a termination payment equivalent to several months pay.

In this role your use of a motor vehicle was significant and you claimed a deduction for the expenses which included interest charges, depreciation and you made use of the log book method to track business use.

You are considering continuing to claim a deduction for the motor vehicle expenses of interest and depreciation for several months following your termination which corresponds with your redundancy payment.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 Division 28

Reasons for decision

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.

For an expense to be an allowable deduction, there must be a sufficient connection between the outgoing and the assessable income such that the expenditure is incidental and relevant to your income producing activities ( Ronpibon Tin NL and Tongkah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; (1949) 4 AITR 236; (1949) 8 ATD 431, and it must have the essential character of an outgoing incurred in gaining assessable income ( Lunney & Hayley v. Federal Commissioner of Taxation (1958) 100 CLR 478; (1958) 7 AITR 166); (1958) 11 ATD 404).

Division 28 of ITAA 1997 sets out the rules for working out deductions for car expenses using one of the four methods described. These methods each seek to calculate the 'business kilometres' which are kilometres the car travelled in the courses of producing your assessable income.

In your case, you have ceased to be employed and you do not have any assessable income and therefore there will be no business kilometres travelled.

The motor vehicle expenses that you incur after that date would not be in connection with any employment or incurred in the course of carrying on your employment duties and you are not entitled to a deduction for the expenses incurred relating to owning and using your motor vehicle as they are private in nature and not incurred in producing an assessable income.

No deduction is allowable for motor vehicle expenses after you ceased to be employed.