According to the ATO, car expense deductions are among the most commonly claimed tax deduction items.
Up until 2015, there were four ways to calculate and claim your work-related car expenses on your tax return. But with new rules in place for 2016, things have changed!
Below is the new rule on how you can calculate car expense deductions and claim valuable car expenses in your 2016 tax return.
Claim Car Deductions: Changes for 2016
Previously, there were four methods to calculate and claim your work related car expense deductions:
- 12 percent of the original value
- One third of actual expenses
- A logbook for 12+ continuous weeks
- Cents per kilometre
The above rules are changed for 2016. The ATO eliminated the 12 percent of original value method
and the 1/3 of actual expenses method from the tax return.
NOW THERE ARE ONLY TWO METHODS TO CALCULATE CAR EXPENSE CLAIMS on your tax return:
- THE LOGBOOK METHOD, or
- CENTS PER KILOMETRE METHOD.
Note – there are more changes to the Cents per KM method as well!
In past years, the rate for claiming cents per km was determined by the size of your car’s engine.
For 2016 the ATO has just one FIXED RATE OF 66 CENTS PER KM FOR ALL CARS regardless of
engine size. This will reduce the amount that some people can claim as a deduction (so, using a
logbook may work better for you).
Which car tax deduction method is best for me?
It all depends on why you use your car for work (and how much).
Below we’ll give you a brief overview of each method.
Cents per Kilometre Method
- Can claim up to 5000km per year using this method
- No log book required
- ATO can ask you to explain how you calculated your claim and how the use of your car was work related.
- You can claim 66c per work related km
Example: Ivy is an administration officer for a small business. Each day she does 4 trips in her car to
collect/drop off the post and do the banking. She drives approximately 14km per day in work related
Therefore Ivy can claim:
- 14km X 5 days = 70km p/week
- 70km per week X 48 weeks (Julie has 4 weeks leave each year) = 3360km
- 3360km X $0.66 = $2217.60
This means at item D1 Ivy can claim a car expenses deduction about of $2217.60.
Car Logbook Method
We are only covering the basics of this method here (please refer to the ATO Portal for more information):
- You must keep a logbook for 12 continuous weeks
- You must own the car
- You only need to complete the logbook process one time every five years (or less)
- Record all business trips AND all personal trips in your car logbook
- Keep receipts for all expenses related to your car, including
- Month to Month Car Insurance
- Interest on loan costs
- Other running costs
Once you complete your logbook, it is possible to calculate your business-use percentage. (That is the
ratio, or percentage split, between work and personal driving.) Then, you claim the business
percentage of all expenses related to your car.
Example: Jeff is a sales manager and he kept a logbook for 12 weeks recording both work and
personal trips. After that 12 weeks, Jeff added up the total kilometres travelled on work-related trips.
Then he added up the total mileage. Next he divided work km’s by total km’s and that is his workrelated
For Jeff, it is 85%.
Jeff travelled 1000 km in total during the 12-week logbook period. He travelled 850 km on work-related
850km divided by 1000km = 85%
Jeff adds up the receipts for all of his car expenses for the year, which total $8,350. Then he multiplies
that by 85%, his work-related percentage.
$8350 x 85% = $7097.50
Jeff can claim $7097.50 worth of car expenses at Item D1 on his tax return.