Edited version of private advice

Authorisation Number: 1052315512951

Date of advice: 11 October 2024

Ruling

This private ruling was revised following issue. This edited version has therefore been replaced with the edited version of the private ruling with the authorisation number of 1052362784223.

Subject: Motor vehicle expenses

Question 1

Are you entitled to claim a deduction for motor vehicle expenses using the log book method for the 20XX-XX year based on a logbook maintained in the 20XX-XX income year?

Answer 1

No.

You commenced the recording of your log book on DD MM 20XX and therefore are taken to have used the log book method for the 20XX-20XX income year.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You are employed as a tradesmen.

You are required to attend various job sites to perform your work, along with your large work tools.

You use your own private motor vehicle for work related purposes.

The vehicle is registered in your name.

On DD MM 20XX, you commenced recording dates in your logbook.

You are new to managing your business affairs and did not understand the ramifications of not keeping a logbook within the 20XX financial year.

Your employment duties have been consistent throughout the 20XX-20XX period and continue to be unchanged at this time.

You estimate your motor vehicle costs for the 20XX-20XX period will be $X with a logbook percentage ranging from 40% - 80%.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 28

Income Tax Assessment Act 1997 section 28-110

Income Tax Assessment Act 1997 section 28-115

Income Tax Assessment Act 1997 section 28-120

Income Tax Assessment Act 1997 section 28-125

Income Tax Assessment Act 1936 section 262A

Does IVA apply to this private ruling?

Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement.

If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax.

We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.

If you want us to rule on whether Part IVA applies, we will need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.

For more information on Part IVA, go to our website ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select 'Part IVA: the general anti-avoidancerule for income tax'.

Reasons for decision

Division 28 of the Income Tax Assessment Act 1997 (ITAA 1997) sets out the rules for working out a taxpayer's deductions for 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).

However, section 262A of the Income Tax Assessment Act 1936 (ITAA 1936) requires that records must be kept to explain all transactions. Paragraph 2 of Taxation Ruling TR 96/7 which deals with record keeping under section 262A of the ITAA 1936 states that 'a person must keep the records in a manner as to enable the person's liability under the Act to be readily ascertained'. Thus a log book or some other form of record keeping documentations is necessary in order to verify the business use of the motor vehicle.

The proportion of the estimated number of business kilometres to the total number of kilometres travelled while it was owned or leased during the income year is then applied to the substantiated car expenses to calculate the amount of deductible car expenses.

If using the log book method the following must be met:

1.              The log book must be kept for a period of 12 weeks.

2.              Show the start and end date of the log book period and for each business journey.

3.              Show the total number of kilometres travelled during the period including details of each journey.

4.              Include the odometer reading at the start and end of the log book period and for each journey.

5.              Show the reason for each journey.

6.              Include the business use percentage for the log book period.

7.              Show the make, model, engine capacity and registration number of the vehicle.

The log book must be kept in the first year for which this method is used as per section 28-115 of the ITAA 1997.

You have stated that a log book was not kept for the 20XX-20XX income year, and therefore this method may not be used for that income year. However other methods are available for claiming motor vehicle expenses incurred for business use, that is:

(a)           One-third of actual car expenses method - where written evidence of expenses is required, for example receipts for fuel and oil or by keeping odometer records.

(b)           12% of original value method - no substantiation required, the number of business kilometres is based on reasonable estimate

(c)            Cents per kilometre method -no substantiation required, the number of business kilometres is based on reasonable estimate.

Methods (a) and (b) can be used where the business use exceeds 5,000 km and method (c) is used where business use is 5,000 km or less for the whole financial year.

The log book method, however, may be used for the 20XX-20XX income year provided the above requirements of section 28-115 are met. This being as follows:

(1)           you need to keep a log book for the first income year for which you use this method for the car. This includes situations where the car was not used for income-producing purposes in previous years, or where the car was used for income-producing purposes but a different method was used to calculate the car expenses;

(2)           having kept a log book for one income year, you don't need to keep a new on for the next 4 or more income years unless subsection (3) or (4) requires it. If you haven't kept a new log book for 4 income years in a row, you must keep one for the next income year (eg in 1997/98, and again in 2002/03, unless subsection (3) of (4) requires one sooner).

(3)           you must keep a log book for an income year if the Commissioner sends you a notice before the year directing you to keep a log book for the car for that year.

(4)           you must keep a log book for an income year if, during that year you get one or more additional cars for which you want to use the "log book" method for that year. This is because the availability of an additional car may be expected to affect the car's business use percentage and a new log book should therefore be maintained.

(5)           when you replace one car with another, you might have a period when you hold both the new car and the old car, or a period when you no longer hold the old car but do not yet hold the new car. In both these cases, you are treated for the purposes of subsection (4) as if you held the one car continuously.

(6)           you may choose to keep a log book for an income year even if you don't need to: for example, because you want to establish a higher business percentage.

Recording car trips

In terms of keeping a log book in the 12-week period, section 28-125(2) of the ITAA 1997 requires a journal entry specifying the following:

(a)           the date the journey began and ended;

(b)           odometer readings at the start and end of the journey;

(c)            the number of kilometres travelled in the journey; and

(d)           the purpose of the journey.

Section 28-125 states that in addition, if 2 or more consecutive business journeys are made in the car on the same day, they may be recorded as a single journey.

Section 28-125(2) and (5) of the ITAA 1997 states each entry must be made in English as soon as practicable after the end of the journey.

The log book itself must also record the following details listed in section 28-125(4):

(a)           when the 12-week log book period begins and ends;

(b)           odometer readings at the start and end of the period;

(c)           total kilometres travelled during the period;

(d)           total business kilometres travelled on recorded journeys during the period; and

(e)           business percentage of travel during the period (ie item (d) divided by item (c) expressed as a percentage).

Importantly, any variations in patterns of use must be accommodated in making the business kilometre estimate when using the log book method. This would apply to things such as seasonal business fluctuations or holidays.

Reid and FCT [2019] AATA 4624 provides an example of how not to use the log-book method. The taxpayer owned a car that he claimed he used predominantly as a work vehicle. He elected to use the log book method and claimed 91.21% of business usage for car expenses. He claimed work-related car expenses totalling almost $72,000 over 3 income years. The AAT agreed with the ATO that severe defects in the way the taxpayer maintained his log books made him ineligible to use the log book method. The log books contained:

•                multiple inconsistencies that indicated the entries were not made contemporaneously (eg inconsistencies between the day of the week and the date, the same odometer readings on different dates and dates repeated);

•                entries that are were not contemporaneous as they were not made at or as soon as possible after the end of the journey; and

•                entries that were inconsistent with other documents and information provided to the ATO (eg dates stating "customer visit" when his employer's records showed that he was sick and on personal leave).

You have elected to use the log book method for your motor vehicle expenses and have commenced recording dates and odometer readings from DD MM 20XX to date. Any expenses occurred in the 20XX-20XX income year would need to be made and recorded at or as soon as possible after the end of the journey as per section 28-125(2) and (5) of the ITAA 1997.

Conclusion

If a taxpayer has commenced and used the log book method for the 20XX-20XX income year, the tax payer is taken to have used the method for that income year. In your circumstances, you commenced the recording of your log book on DD MM 20XX. You have not kept record of any log book dates for the 20XX-20XX income year and therefore are taken to have used the log book method for the 20XX-20XX income year.