ATO has $8.5 billion worth of car deductions in its sights

The tax office is warning employees there is no such thing as a “free pass” when claiming car deductions each year, while small business owners with vehicles have been reminded to check in with their accountants about what deductions they are entitled to this year.

On Friday the Australian Taxation Office warned taxpayers not to simply claim a “standard deduction” for car expenses if they cannot justify the claim.

ATO assistant commissioner Kath Anderson said in a statement 3 million Aussie taxpayers claimed $8.5 billion in 2015-16, with a “significant portion” being right at the limit of a cents-per-kilometre claim, above which individuals have to start showing further details of their calculations.

“While it’s true that you don’t need written evidence for claims of up to 5000 kilometres per year, you do need to be able to show that you were required to use your car for work, and how you calculated your claim,” Anderson said.

She also warned the tax office was focused on “double dipping”, or making claims where an individual has already been reimbursed by their employer.

Before July 1, 2015, the ATO accepted four different methods of car expense claims, including a “one third of actual expenses” method. This has now been narrowed down so taxpayers can either claim cents-per-kilometre, or show a logbook.

For the cents-per-kilometre method, an individual can claim up to 5000 kilometres per vehicle in a year, based on a claim of 66c per kilometre traveled. Individuals don’t need to itemise journeys for this method, but the tax office has reminded individuals they do need to provide justification for any claims when asked.

The logbook method involves making a claim for the percentage of business travel undertaken. This requires all users to compile a 12-week logbook, including trips and odometer readings.

Marie De Angelis, CPA principal at MDA Accounting Services, says now the tax office only accepts two methods for claiming expenses, it’s clear what the ATO expects and she advises clients to provide accurate detail of their travel.

“It’s basically about clarifying and explaining that [car travel claims] are ‘work to work’ and not ‘home to work’,” she says. 

De Angelis says she tells clients who are completing logbooks to choose the busiest few months of their year and complete the logbook during this time.

The ATO says workers cannot claim expenses for travel from their home to work, unless they are carrying equipment.

However, when making claims for transporting work tools, you must be able to prove there is no “safe place to store them” at your workplace and that you must carry them to and from home for this reason.

The tax office says the three golden rules for work-related claims also apply to car travel: an individual has to have spent the money themselves; they must be travelling for a purpose directly related to earning an income; and they must not have already been reimbursed for the claim.

Ask your accountant on business vehicles

There are a range of different factors that come into play when making a claim for a vehicle your company owns, however, and De Angelis advises businesses to check in with their accountants to discuss how these apply.

“Don’t wait until the end of the financial year to do this, ask now. You don’t want to lose out on any claims,” she says.

If making claims for a vehicle owned by a company or trust, the ATO advises travel expenses can be claimed if they relate to the everyday operation of the business. If anyone uses the vehicle for personal purposes as well, a fringe benefits tax may be payable.

As sole traders, the tax office says claims can be made for the business portion of car travel for a vehicle the business owns or leases.

However, the ATO says it may ask sole traders to provide evidence of the split between business and personal use of a vehicle, and advises sole traders to log the use of the vehicle and keep receipts for all costs, including fuel, maintenance and registration.

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