ATO Interpretative Decision
ATO ID 2010/195
Income Tax
Car expenses: business kilometres - travel to tax agentFOI status: may be released
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Are kilometres travelled by a taxpayer to consult with a tax agent included in the business kilometres used for determining car expense deductions under Division 28 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes. Kilometres travelled by a taxpayer to consult with a tax agent are included in the business kilometres used for determining car expense deductions under Division 28 of the ITAA 1997.
Facts
The employee taxpayer uses a tax agent to prepare their individual tax return.
The taxpayer travelled 4500 kilometres by car in the income year in relation to the taxpayer's income-earning activities.
The taxpayer also travelled 600 kilometres by car in visiting the tax agent for the purposes of managing the taxpayer's tax affairs.
Reasons for Decision
Division 28 of the ITAA 1997 sets out the rules for working out deductions for car expenses. The table in section 28-15 of the ITAA 1997 summarises the basic requirements of the four methods of calculating car expense deductions and subsection 28-12(2) of the ITAA 1997 provides that you must use one of the four methods unless an exception applies, otherwise you cannot deduct anything for car expenses.
For each of the four alternative methods, 'business kilometres' are defined as kilometres the car travelled in the course of:
- (a)
- producing assessable income; or
- (b)
- travel between workplaces.
Section 25-5 of the ITAA 1997 provides for deductions for tax-related expenses. Subsection 25-5(5) of the ITAA 1997 states:
Under some provisions of this Act it is important to decide whether you used property for the purpose of producing assessable income. For provisions of that kind, your use of property is taken to be for that purpose insofar as you use the property for:
Subsection 25-5(5) of the ITAA 1997 provides the example of a computer purchased for preparing tax returns. Whilst the computer is a capital asset, to the extent it is used for preparing tax returns its decline in value is taken to be an income-producing expense under the subsection.
A car is an item of property that may be used for the purpose of producing assessable income. To the extent that a car held by a taxpayer is used for managing the taxpayer's tax affairs or complying with an obligation imposed by a Commonwealth law relating to the tax affairs of another entity, its use is deemed by subsection 25-5(5) of the ITAA 1997 to be for an income-producing purpose.
Car travel for the purpose of visiting the tax agent is therefore counted as 'business kilometres' for the purposes of Division 28 of the ITAA 1997.
In the present case, the taxpayer has travelled in excess of 5000 business kilometres in the income year.
If none of the exceptions in Subdivision 28-J of the ITAA 11997 applies, the taxpayer can claim a deduction for the car expenses using one of the following four alternative methods:
- •
- 'cents per kilometre' method, subject to a limit of 5000 business kilometres with the excess discarded (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)
Year of income: Year ended 30 June 2009
Legislative References:
Income Tax Assessment Act 1997
Division 28
Subdivision 28-C
Subdivision 28-D
Subdivision 28-E
Subdivision 28-F
Subdivision 28-J
section 25-5
subsection 25-5(5)
subsection 28-12(2)
section 28-15
ATO ID 2001/519
Keywords
Tax related expenses
Motor vehicle expenses
ISSN: 1445-2782