Cents per km Method

Q&A Tax

Question :

Mr. Smith is a sole trader and uses his motor vehicle for business purposes. The vehicle is a 4-wheel
drive utility with a carrying capacity of more than 1 tonne.

Under the motor vehicles expenses regulations, can the taxpayer use the cents per kilometre method
for the deduction?

 

Answer :

The cents per kilometre method and log book method are contained in Division 28 ITAA 1997. These
methods can only be used in connection with vehicles that are classified as ‘car’. A car is defined as a
motor vehicle (excluding motor cycles and similar vehicles) designed to carry a load less than one tonne
and fewer than nine passengers.

If the vehicle is designed to carry a load of more than 1 tonne then it should not be classified as a car
and the methods in Division 28 should not apply.

Thus, Mr. Smith might not be able to claim deduction under Division 28 – Car expense but he could still
be able to claim some deductions in relation to the vehicle for the travel they undertake for work /
business purposes but would need to apply the normal deduction rules in section 8-1 ITAA 1997. This
means Mr. Smith would be required to hold records to substantiate the expenses that they are claiming
and to be able to show how the expenses have been apportioned (Division 900 – Substantiation Rules).
Methods to substantiate his claim could include tax invoices and a log book or diary to show the mix of
business / private travel.

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