Motor Vehicle Deduction Changes

Sole Traders & Partnerships

The government has simplified how you can claim car expense deductions for the 2016 and future financial years.  Where previously there were 4 methods to choose from, now only 2 methods are available:

Cents per km

Previously different rates were applicable to different engine sizes, now a flat rate of 66 cents per kilometre applies to all cars.

A maximum of 5,000 business kilometres can be claimed per car using this method, effectively limiting the deduction to $3,300 per annum per car.  You don’t need written evidence of the business kilometres travelled, but the Tax Office may ask you to show how you worked out your business kilometres.

Logbook method

The government has not made any changes to the logbook method.  A basic summary of the logbook method is as follows:

• Logbooks can be purchased from newsagents or downloaded as Apps on your phone.

• The logbook must be maintained for 12 continuous weeks.  The 12 weeks period should be representative of your travel throughout the year.

• Once completed a logbook is valid for 5 years.  If your business use changes materially you must start a new logbook.

• Odometer readings of your vehicle need to be kept at the end of each financial year.

• If using the logbook method for 2 or more cars, the separate logbooks for each car must cover the same period.

• The information entered into a logbook should include the following:

• Odometer reading at the start of each journey;

• Kilometres travelled for each journey (if you make 2 or more journeys in a row on the same day, these can be recorded as a single journey);

• Start and finish times of the journey;

• Reason for the journey.

Considerations

With the reduction in the cents per kilometre rate for most vehicles and the limit of 5,000km claimable per annum, it is a sensible time to consider if the logbook method will produce higher deductions come tax time.  If you complete a logbook you still have the choice to use the cents per kilometre method if this results in a higher deduction.

If you have not yet started a logbook but want to claim this method for the 2016 financial year, it is essential that you commence a logbook as soon as possible.  By starting now the 12 week period will not finish until July 2016, but this logbook may still be used to calculate your deductions for the year ended 30 June 2016.

Should you have any queries about how to correctly claim car expense deductions, please do not hesitate to contact our office on (03) 5744 3861.

Regards

O’BRYAN & O’DONNELL