Most taxpayers claiming car expenses use the cents per kilometre method but there are some common misconceptions that lead to lodgment errors.
Remember to always ask your clients how they use their car and check they have the appropriate records.
We've busted the top 5 myths:
- Myth 1: Claim travel between home and work
Generally, no – regardless of the method used, taxpayers can't claim car expenses to commute to and from work. There are very few exceptions to this rule, such as when taxpayers have to carry bulky items essential to performing their work and there's no secure storage provided at their workplace.
- Myth 2: Just claim 5,000 kms, no records needed
Wrong. Records must be kept for evidence of:
- ownership of the car, or a personal lease (or if not theirs, show there is a private arrangement to use the car)
- how the car was used for work-related trips
- how the kilometres were worked out.
- Myth 3: It doesn't matter what type of lease you have, you can claim car expenses
This is only correct when there's a personal lease on the car.
However, if there's a novated lease through a salary sacrifice arrangement, the car isn't owned by the taxpayer, so they can't claim expenses. We receive data about novated leases that helps us identify taxpayers who shouldn't be claiming car expenses.
They may still claim work-related parking and tolls, if these costs aren't reimbursed by their employer.
- Myth 4: You can claim the car's decline in value using both cents per kilometre and logbook methods
Wrong. The decline in value is built into the cents per kilometre method along with all other car expenses, including registration, insurance, fuel, maintenance and repairs.
The decline in value can only be claimed as a separate expense when using the logbook method.
- Myth 5: You can use cents per kilometre and logbook methods for different periods during the income year to maximise deductions
Wrong, taxpayers must use the same method for the full income year. They can't split the year between the 2 methods. If they're not sure which method to choose, it's best to advise them to keep all records throughout the year.
Your clients can use the myDeductions tool in the ATO app to add trips, which can then be shared with you.
See our website for more information about Motor vehicle and car expenses and TR2021/1 Income tax: when are deductions allowed for employees' transport expenses?
If clients choose to use the logbook method, refer to our tips at It's logbook check-in time.