Claiming a tax deduction for motor vehicle expenses

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Did you know you can claim a tax deduction on a secondhand car … even if it’s financed?

A financed second hand car is treated exactly the same way a brand new financed car is treated.

There are two methods to calculate your car expenses

Cents per kilometer method

To calculate your deduction using this method, multiply the number of work-related kilometres you travel in the car by the rate per kilometre for that income year.  The rate for the 2024 financial year is 0.85 cents per kilometre.

‘Work-related kilometres’ are the kilometres your car travels in the course of earning your assessable income.  You need to keep a log book to show how you worked out your work-related kilometres.  This method has a cap of 5,000 kms.

The cents per kilometre rate covers all car expenses, including:

  • decline in value
  • registration
  • insurance
  • maintenance
  • repairs
  • fuel costs
  • interest on motor vehicle loan
  • GST on purchase (for business owners registered for GST)

You can’t add any of these expenses on top of the rate when you work out your deduction using this method.

Logbook method

To calculate your deduction using the logbook method, you need to:

Keeping a logbook

Your logbook must:

  • cover at least 12 continuous weeks and be broadly representative of your travel
  • include the destination and purpose of every journey (including private kms travelled), the odometer reading at the start and end of each journey, and the total kilometres travelled during the period
  • include odometer readings for the start and end of the logbook period.

Your logbook is valid for 5 years. However, if your circumstances change (for example, if you change jobs or move to a new house), and the logbook is no longer representative of your work-related use, you will need to complete a new 12-week logbook.

In each of the 4 years following the first year, you need to keep:

  • odometer readings for the start and end of the full period you claim
  • your work-related use percentage based on the logbook.

If you are using the logbook method for 2 or more cars, keep a logbook for each car and make sure they cover the same period.

You can keep an electronic logbook using the myDeductions tool in the ATO app, or keep a paper logbook.

You must retain your logbook and odometer records for 5 years after the end of the latest income year that you rely on them to support your claim.

 

Author

Peta Stephen