Moving on in our series of most commonly asked questions. This one is a doozy as lots of people with no tax training like to provide tax advice around what you can claim for motor vehicles, salespeople anyone!? OK, so here is the downlow from taxation professionals qualified to give you this advice.
It depends on what structure you have, which we have broken down below, so find the part that is relevant to you and read on ...
Individuals or Partnerships
If you are an individual or an individual partner in a partnership you have a couple of methods to choose from:
Cents per km method up to a maximum of 5,000 business km's per year. This can be unsubstantiated but you must be able to show how you worked it out. This must also be for business use purposes and does not include private use (home to work, work to home). The rate for the 2019 and 2020 year was 68 cents per km & 2021 year is 72 cents per km.
Logbook method You can claim the business use % of car expenses based upon a logbook that you have maintained over a continuous 12 week period which can be used for a 5 year period (if it is representative of your travel throughout the year)
Common types of motor vehicle expenses include:
Fuel & Oil
Repairs & Servicing
Interest on Motor Vehicle Loan
Depreciation (decline in value)
So how long do I need to keep these records on file for? The ATO recommends 5 years!
Word of warning, we only recommend this method if you are organised enough to collate the above information - estimates are not good enough.
Companies and Trusts
If you operate through a company or trust structure you can only claim the actual costs for motor vehicle expenses *refer common types of motor vehicles expenses included above* that are part of the everyday running of your business. Actual costs are based upon receipts for expenses incurred.
If you provide a motor vehicle to employees that has any private use and is not considered an FBT exempt motor vehicle (the list is here https://www.ato.gov.au/General/Fringe-benefits-tax-(FBT)/Types-of-fringe-benefits/Car-fringe-benefits/Fringe-benefits-tax---exempt-motor-vehicles/) then you need to consider the fringe benefits tax (FBT) consequences. FBT is another topic in itself, trust us, so make contact with us to discuss if you think this may apply to you.
If your employee uses their own vehicle for business related purposes and you pay them a motor vehicle allowance or reimburse them for their costs, your business can claim a deduction for the allowance or expenses reimbursed (but not depreciation).
If a motor vehicle is provided to a shareholder of the company or their associate to use in their capacity as an employee this may be treated as a loan (Division 7A) or dividend so once again important to make contact with us so we can discuss treatment and tax consequences.
All I want to know is 'Can I claim the motor vehicle purchase as a deduction?' because that's what the motor vehicle salesman told me I could do!
Well yes there is an 'Instant Asset Write Off' that may be available to utilise. In order to be eligible your business must have an aggregated turnover of <$500 million.
The instant asset write off has no cap for assets purchased from 6 October 2020 and installed and ready for use prior to 30 June 2022 for eligible businesses BUT it is for the BUSINESS portion of the cost of the asset. Did you note the highlight of BUSINESS USE. If there is any private use you cannot claim that portion.
One other really important matter to note is the pesky car cost limit. What is such a thing I hear you say? Yep, there's an upper limit on the cost you can claim for the business use of your car which is $59,136 from 1 July 2020. Boo! insert tears and wailing ... yes we know and feel your pain but them's the rules (ps. this also caps the amount of GST you can claim on the purchase)
So as you can see it's not quite as simple as saying I use my car for business so please claim the maximum. Reminder, we are here to help, so feel free to reach out anytime if you have any questions.
Disclaimer: The information provided is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice