Individual taxpayers using their own car (including a car that is leased or hired) to perform work-related duties, as an “employee”, may be able to claim a deduction in their annual income tax return for Car Expenses.
In this blog, we take a closer look at the rules and record-keeping requirements associated with Car Expenses.
The Rules
In general, an individual taxpayer (also referred to as an “employee”) can only deduct a Car Expense if:
- the expense relates to gaining or producing assessable income;
- the expense is not of a private or domestic nature;
- the employee incurred the expense and was not reimbursed; and
- records are maintained to support the deduction.
In broad terms, the above criteria is satisfied where an employee’s employment duties requires them to travel using their own car. Another way to describe this is the employee is travelling ‘on work’; or, the travel is ‘part of’ their employment; or, the travel is ‘an incident’ of their employment. In these situations, Car Expenses are incurred in gaining or producing an employee’s assessable income.
On the other hand, a close connection between a journey and an employee’s private or domestic life indicates that the journey occurs outside of the employee’s income-producing activity and is therefore not deductible. For example, where an employee is travelling between home and a regular place of work, the Car Expenses are consequence of living in one place and working in another and do not occur as a part of the employment.
If the Car Expense relates to both work and private purposes, then a deduction may only be claimed for the work-related portion. Further, Car Expenses reimbursed to an employee by their employer are not deductible. It is also worth noting that, an employee cannot deduct travel expenses simply because they receive a travel allowance.
Please note that the ATO can (and does) seek information from an employer if it is suspected that an employee has claimed a deduction for Car Expenses that have already been reimbursed by an employer.
Further, the ATO can contact employers to confirm that an employee’s own car is required to be used for work.
This information relates to Car Expenses only. A “car” is defined for income tax purposes as a motor vehicle (excluding motor cycles and similar vehicles) designed to carry a load less than one tonne and less than nine passengers. Many four-wheel drive vehicles are included in this definition.
Examples – Deductible Car Expenses
You can claim a deduction for Car Expenses if you use your own car in the course of performing your job as an employee, for example to:
- carry bulky tools or equipment (such as an extension ladder) that your employer requires you to use for work and there is no secure storage available at work;
- attend work-related conferences or meetings away from your normal workplace;
- deliver items or collect supplies;
- travel between two separate places of employment (for example, when you have a second job), but not if one of the places is your home;
<liaria-level=”1″>travel from your normal workplace to an alternative workplace (that isn’t a regular workplace) and back to your normal workplace or directly home; </liaria-level=”1″>
- travel from your normal workplace or your home to an alternative workplace that is not a regular workplace – for example, a client’s premises;
- perform itinerant work (see comments further below).
If you receive an allowance from your employer for Car Expenses, it is assessable income and the allowance must be included in your tax return. The amount of the allowance is shown on your payment summary.
Tip – Using someone else’s car or other vehicle
If using someone else’s car or other vehicle (that is not defined as a “car”) for work purposes, you may be able to claim the direct costs (such as fuel and oil).
To claim these costs as a Travel Expense, receipts must be kept for the actual costs incurred. A diary may be helpful to separate private use from work-related trips.
Tip – Carrying Bulky Tools and Equipment
There are 3 important rules to remember in order to claim a tax deduction for expenses related to carrying bulky tools and equipment:
- You need to use the bulky tools and equipment to do your job;
- Your employer expects you to transport the bulky tools and equipment; and
- There is no secure area to store them at work.
Please note that the ATO can (and does) call employers to confirm that an employee is required to transport their bulky tools and equipment to work and that there is nowhere secure to store them.
(See comments on record keeping requirements further below).
Examples – Non Deductible Car Expenses
- Car Expenses associated with travelling between home and work are generally not deductible for tax.
- More specifically, you cannot claim the cost of driving your car between work and home if:
- you do minor work-related tasks, for example, picking up the mail on the way to / from work or home;
- you have to drive between your home and your workplace more than once per day;
- you are on call, for example, you are on stand-by duty and your employer contacts you at home to come into work;
- there is no public transport near where you work;
- you work outside normal business hours, for example, shift work or overtime;
- your home was a place where you ran your own business and you travelled directly to a place of work where you worked for somebody else; and
- you do some work at home.
- Importantly, Car Expenses that have been salary sacrificed or reimbursed by your employer cannot be deducted for tax.
Tip – Travel in connection with Residential Rental Property
From 1 July 2017, Car Expenses incurred by individuals in relation to gaining or producing assessable income from a residential rental property are not deductible for income tax purposes.
This covers, for example, Car Expenses (and other Travel Expenses) incurred in order to collect rent or to inspect or maintain a residential rental property.
Calculating your deductions
A choice can be made between either the “cents per kilometre method” or the “logbook method” to calculate deductions for Car Expenses.
If you are claiming Car Expenses for more than one car, you can use different methods for different cars. You can also switch between the two methods for different income years for the same car.
For further details on the use of the two methods for cars that you own, lease or hire under a hire-purchase agreement, please refer to the ATO website (see here).
Cents per kilometre method
Under the cents per kilometre method a single rate is used. From 1 July 2020, the rate is 72 cents per kilometre. (The rate was previously 68 cents per kilometre for 2018-19 and 2019-20).
Under this method, a maximum of 5,000 business kilometres can be claimed per car.
Written evidence is required to show how the business kilometres were calculated (for example, by producing diary records of work-related trips or consistent travel between sites, supported by Google Maps).
Where you and another joint owner use a car for separate income-producing purposes, you can each claim up to a maximum of 5,000 business kilometres.
Logbook method
Under the logbook method, the amount claimed is based on the business-use percentage of the expenses for the car. Expenses include running costs and depreciation but not capital costs, such as the purchase price of the car, the principal or any money borrowed to buy it, or any improvement costs.
To work out the business-use percentage, a logbook and the odometer readings for the logbook period is needed. The logbook period is a minimum continuous period of 12 weeks.
Fuel and oil costs can be claimed based on either actual receipts or an estimate of the expenses based on odometer records (showing readings from the start and the end of the period that you used the car during the year). For all other Car Expenses, written evidence must be produced.
The ATO website has a section dedicated to Car Expenses (see here) and has a useful summary poster of the above information (see here).
Special Topic – Itinerant work
For those that perform itinerant work (or have shifting places of work), Car Expenses incurred whilst travelling between workplaces and home is deductible for tax.
The following factors may indicate that you perform itinerant work:
- Travel is a fundamental part of your work, as the very nature of your work, not just because it is convenient to you or your employer;
- You have a ‘web’ of work places you travel to, throughout the day;
- You continually travel from one work site to another;
- Your home is a base of operations – you start work at home and can’t complete it until you attend your work site;
- You are often uncertain of the location of your work site; and
- Your employer provides an allowance in recognition of your need to travel continually between different work sites and you use this allowance to pay for your travel expenses.
For work to be itinerant, it is important that the travel is fundamentally tied to an employee’s employment income. If the travel is merely a matter of convenience for either the employee or the employer, the expense is private in nature and not deductible for tax.
Example 1 – Non itinerant work
Michelle is a substitute teacher, who travels to different schools when teachers are away. She sometimes attends a school for just one day, and at other times for a few weeks.
Michelle is not carrying out itinerant work. While she may not know where she is going to work each day, she will only ever work at one location for the day. She can’t claim a deduction for the cost of the transport between home and work.
Example 2 – Itinerant Work
Cory works as an apprentice electrician and is dispatched to various sites each day. He travels to the first location from his home and returns home at the end of the day from the last site at which he has worked. Cory is carrying out itinerant work as he is travelling between sites all day and can claim a deduction for the transport expenses he incurs when he travels between home and work each day.
Cory can also claim the cost of his transport to travel between each site during the day. However, if Cory only attended one site and worked there for several days until the job was finished, he would not be carrying out itinerant work.
Record keeping rules
Specific record keeping rules apply to Car Expenses. The records required to be kept depend on the method used to calculate the claim.
Cents per kilometre method
Under the cents per kilometre method, a claim is based on a set rate for each business kilometre travelled. A maximum of 5,000 kilometres per car can be claimed.
Under this method, receipts are not needed, however you must be able to show how you worked out your business kilometres.
You must be able to produce diary records of work-related trips and/or show consistent travel between sites, supported by Google Maps.
Logbook method
Under this method, a claim is based on the percentage of work use of a car.
Your logbook must:
- cover a minimum continuous period of 12 weeks and be broadly representative of your travel throughout the year;
- include the purpose of every journey, odometer reading at the start and end of each journey and total kilometres travelled during the period; and
- include odometer readings at the start and end of each income year.
You must also keep:
- original receipts for all other expenses related to the car;
- details of how you calculated your claim for the decline in value of your car, including the effective life and method used.
If your claim relates to the transport of bulky tools and equipment, you will need to keep a record of:
- all work items carried;
- the size and weight of all work items;
- evidence that the items carried are essential to your work; and
- evidence that your employer provided no secure storage at the workplace.
A logbook is valid for five years, however, a new logbook can be started at any time. If the work use of your car changes or your purchase a new vehicle, a new logbook must be completed.
myDeductions
The ATO has a record keeping tool called, “myDeductions” that makes it easier to keep track of records digitally.
Records made and stored electronically are recognised as documents, and includes photos of receipts. This information can then be emailed directly to your registered tax agent. For further information, including instructions on how to download this ATO app, see here.