The challenge: Maria Bekiaris
Take care: whatever method you choose, you must be able to substantiate a claim
Don’t look now, but … That’s exactly what it’s doing. The tax office recently warned taxpayers it was paying close attention to work-related car expenses this year. In particular, assistant commissioner Kath Anderson says it will be looking at “standard” deductions to ensure they can be justified.
“Some people think they are entitled to a standard deduction for car expenses using the cents per kilometre method but this is not the case,” she says. “While it’s true 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.” Common pitfalls
Anderson says a common mistake is claiming car expenses for travel between your home and place of work. These costs are not deductible, as they are not directly related to performing your work duties. One exception is where you have a good reason for claiming – such as being required to transport bulky tools or equipment to work. However, even then you must be able to prove your employer required you to do so, and there was no safe place to store them.
Anderson says the tax office audited a railway guard whose claims were much higher than others in the same occupation. He had claimed car expenses to and from work because he had to transport bulky tools in his car. His employer told the tax office storage facilities for these items were available at work. It was the employee’s own choice to carry them back and forth. So his claim was denied and he had to pay $2000 for tax owed plus interest.
In another case a school crossing safety officer claimed for carrying his safety sign to and from work. However, it turned out the sign was stored on the school premises so the claim was denied.
Anderson says another pitfall is double dipping, or claiming expenses that your employer has already paid either through reimbursement or through a salary sacrifice arrangement.
One audit found a manager who claimed $3800 in car expenses did not actually own his car. It was held under a novated lease arrangement where the employer leases the car on the employee’s behalf. The claim was disallowed and the taxpayer was hit with a penalty.
Methods of claiming
From July 2015 the options for claiming car expenses were reduced from four possible ways to just two.
Under the cents per kilometre method you can claim 66¢ per kilometre travelled for work purposes in 2016-17 up to a maximum limit of 5000 kilometres. This is the method being targeted by the tax office, as you don’t need written evidence to substantiate your claim. However, you do need to be able to show how you worked out your business kilometres such as being able to produce diary records of work-related trips.
The alternative is the logbook method. This is more generous in that you can claim things such as running costs and the decline in the car’s value (but not capital costs such as the purchase of the car or loan repayments) rather than being limited to 66c per kilometre. However, you are required to keep a logbook and odometer readings for at least 12 continuous weeks showing how you used the car. This logbook is valid for five years.
The logbook must show the odometer reading at the start and end of the logbook period, the total kilometres travelled, the start and finishing times and odometer
readings of work-related trips and the reasons for the journey, and the business-use percentage over this period. You can claim costs such as fuel based on your actual receipts or estimates based on the odometer readings at the start and end of the period you used the car during the year. Where the car is used for both business and private use, expenses must be apportioned.
The tax office has a car expenses calculator at ato.gov.au. Simply enter “work related car expenses calculator” in the search field to find it.
The golden rules
Anderson says there are three golden rules to stay out of trouble. First, you have to have spent the money yourself. Your employer can’t have reimbursed you. Second, the claim has to be directly related to earning your income and, third, you need some type of records to prove your claim.
Annette Sampson has written extensively on personal finance. She was personal finance editor with The Sydney Morning Herald, a former editor of the Herald’s Money section and a columnist for The Age. She has written several books.