Motor vehicle expenses for Small Businesses

The things you must know

  • The way to calculate your claim depends on your business structure.
  • If you change your business structure, your entitlements and obligations may change.
  • You must apportion your expenses between business and private use.
  • You must keep records for five years to prove your expenses.

Types of motor vehicles

The type of motor vehicle you drive can affect how you calculate your claim. A motor vehicle is either a car or an ‘other vehicle’.

Car

A ‘car’ is a motor vehicle that is designed to carry:

Usually less than nine people and less than one tonne in weight. Many four-wheel drives and some utes are classed as cars.

Other vehicles

If your motor vehicle is not a car it’s an ‘other vehicle’. Other vehicles include:

Motorcycles

Minivans capable of carrying nine or more passengers

Utes or panel vans designed to carry loads of one tonne or more.

Types of expenses

Below are the most common types of motor vehicle expenses that can be claimed:

  • Fuel and oil
  • Repairs and servicing
  • Interest on a motor vehicle loan
  • Lease payments
  • Insurance registration
  • Depreciation (decline in value) of the vehicle.

Business structure

Your business structure affects your entitlements and obligations when claiming deductions for motor vehicle expenses.

Sole traders and partnerships

If you operate your business as a sole trader or partnership (where at least one partner is an individual), the way to calculate your deduction depends on the type of vehicle and how it is used. The vehicle can be owned, leased, or hired under a hire purchase agreement. You can only claim motor vehicle expenses that are part of the everyday running of your business (such as travelling between different business premises). If the vehicle is used for both private and business purposes, you must exclude any private use (such as driving your children to school).

Cars

For cars, you can use the cents per kilometre method or the logbook method

  1. Cents per kilometre method

The rate per kilometre (66 cents in 2017–18 and 68 cents in 2018–19) takes into account your car running expenses, including depreciation. You don’t need written evidence, but you must be able to show how you worked out your business kilometres (for example, calendar or diary records). A maximum of 5,000 kilometres can be claimed with this method.

For claims above 5,000 kilometres you must use the logbook method to claim the entire amount.

  1. Logbook method

You can claim the business-use percentage of each car expense, based on logbook records.

  1. You must record:
  • When the logbook period begins and ends
  • The car’s odometer reading at the start and end of the logbook period
  • Details of each journey including:
  •  start date and finishing date
  •  odometer readings at the start and end
  •  kilometres travelled
  • reason for the journey

You must keep the logbook for a period (at least 12 continuous weeks) that is representative of your travel throughout the year. You can then use this for 5 years.

Work out the percentage of business travel from your logbook and use this to claim your business-related car expenses. You can’t claim capital costs such as the purchase price of the car, but you can claim this as depreciation.

Other vehicles

For all other vehicles, you can’t use the cents per kilometre or logbook method. Your claims must be for actual costs for expenses you incurred, based on receipts. You can use a diary or journal to separate private use from business use.

Companies and trusts

If you operate your business as a company or trust, you can only claim the actual costs for motor vehicle expenses that are part of the everyday running of your business (such as travelling between different business premises, visiting clients or picking up goods for sale). Actual costs are based on receipts for expenses incurred.

You cannot use a simplified method, such as cents per kilometre, to calculate your claim. Make sure private use is separated from business use – by keeping a logbook or diary, recording the purpose of each trip and what portion was for business.

Motor vehicle ownership

There are further considerations depending on the ownership of the vehicle.

Vehicle owned or leased by your business

Your business can claim a deduction for the running expenses of a vehicle that is owned or leased by your business.

Vehicle owned by your employee

If your employee uses their own vehicle for business-related purposes and you pay them a motor vehicle allowance or reimburse them their costs, your business can claim a deduction for the allowance or expenses reimbursed, such as the cost of fuel.

You can’t claim depreciation if the vehicle is owned by your employee.

Your employee can claim a deduction for costs related to the business use of their vehicle in their own tax return, less any reimbursements or allowance they received from your business.

Records you need to keep

The records you need to keep depends on the method you use to calculate your motor vehicle expenses. Regardless of the method you use, you will need to keep:

  • Loan or lease documents
  • Details on how you calculated your claim
  • Tax invoices
  • Registration

Want to get an expert opinion on what you can and can’t claim? Book with us today! http://calendly.com/taxideas

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