Small business owners can save money by deducting car expenses, but many don’t realise they can. This article aims to provide a comprehensive guide on motor vehicle expenses claims, helping you understand how and when to claim these deductions. Whether you’re using cars, trucks, vans, or motorcycles for your business, you can claim their costs, including lease or finance payments, fuel, oil, and repairs. This way, you can reduce the amount you pay in taxes by making the most of the deductions for vehicle expenses allowed by the ATO
Understanding Motor Vehicle Expenses
The costs associated with the business use of a vehicle can significantly impact your financials. These expenses, including the purchase, leasing, fuel, maintenance, and repairs of vehicles, can often be deducted from your taxes, reducing the amount you owe.
Motor Vehicle Expenses Claims
The ATO has specific guidelines for claiming vehicle expenses, which vary based on:
- The type of vehicle used (cars vs. other vehicles like trucks or motorcycles).
- Your business structure (sole trader, partnership, company, or trust).
- The proportion of vehicle use for business purposes compared to personal use.
Type of Motor Vehicles
vehicle designed to carry a load of less than one tonne and fewer than 9 passengers. This includes many four-wheel drives and some utility vehicles (utes). You can use cents per kilometre or logbook method for calculating your deduction.
Motorcycles, minivans (capable of carrying 9 or more passengers), and utes or panel vans designed to carry loads of one tonne or more. You can only use actual cost method for claiming vehicle expenses.
Important Note: Expenses for a ute are not automatically deductible. You must use the ute for business, and only the business portion is claimable.
Type of Business Structure
Sole Traders and Partnerships
These entities can claim expenses for vehicles used in the course of running the business, excluding personal use. You have the option between cents per kilometre or logbook method for calculating your deduction.
Companies and Trusts
You can only use actual cost method for claiming vehicle expenses. FBT apply if a vehicle is also used for personal purposes by employees or associates.
Important Note: All claims for vehicle expenses must be supported by receipts or other documentation that proves the expense was made. Companies and trusts cannot use the standardised methods such as the cents per kilometre method or the logbook method for calculating motor vehicle expenses.
Calculating Your Vehicle Expense Deductions
There are three methods in calculating the deductions:
Cents Per Kilometre Method:
This approach allows you to claim a fixed amount for each business kilometre travelled, but you can only claim up to 5,000 km per vehicle, per year. The rate are reviewed regularly so always check ATO for the latest rate. for the year 2023-24 financial year, the rate is 85 cents per kilometre, covering all vehicle operational costs.
By maintaining a detailed logbook of business travel, you can claim a proportion of all vehicle expenses based on business use. This method suits those who travel more than 5,000 km for business annually.
Actual Cost Method:
This method involves tracking and claiming the total real expenses for using your vehicle for business purposes. You need to keep detailed records of every expense, including fuel, repairs, insurance, registration, and depreciation. There’s no limit to the amount or distance you can claim, making it ideal for vehicles heavily used for business.
Grasping the nuances of motor vehicle expenses and accurately claiming them is essential for business owners. By utilising the appropriate methods and keeping detailed records, businesses can substantially improve their financial health through strategic tax deductions. For a deeper understanding on each methods, please visit our detailed guide: ‘Motor Vehicle Expenses: How to Claim.’
At MKG Partners, we specialise in providing tailored solutions to optimise your tax strategies and maximise your deductions. Our team of experienced professionals is dedicated to you navigate the complexities of motor vehicle expenses and other financial matters. Contact us today for expert guidance.