Most business operators are aware they can claim for motor vehicle expenses as a tax deduction when a vehicle is used for generating income.

There are elements of confusion with some small business operators falling into a trap of not being aware of the correct method for their circumstances.

There are four ways to claim motor vehicle expenses:

  • Cents per kilometre;
  • Usinga logbook;
  • 12% of original cost;
  • 1/3 of actual expenses.

The simplest method is the cents per kilometre, however you can only use this if you travel less than 5,000km for work during the year.

You need to keep records of your work related trips and the total kilometres travelled.

If this was 2,500km for the year, in a car with an engine capacity of more than 2.6 litres, your claim would be $1,925, being 2,500 multiplied by 77 cents.

For a small car, below 1.6 litres, the rate is 65c while a medium car its 76c.

The logbook method requires you to keep a record of all your travel, work and private, in a log book for a continuous period of at least 12 weeks.

You then calculate your business use percentage and apply this to your total car expenses for the year.  You also need to record and keep documents to support your total vehicle expenses for the year.

If you travel more than 5,000 work related kilometres you can use the 12% of original cost method.

This is simply 12% of the original purchase price of the vehicle, subject to you having the original purchase receipt.
For the 1/3 of actual expenses method you don’t need to keep a logbook, but receipts for your expenses do still need to be kept.

Overall, when making a claim, you are able to choose the method that gives you the best result. Your choice can change each year but you must keep the appropriate records.

MKG Accounting can help you in determining the best method for your business.