When preparing your online business tax return, there are a lot of things that you take into consideration. One of these things is how you use vehicles into your business. You may be a sole trader operating through a third-party driving company like Uber, or you may operate a driving business; whatever it may be, these business vehicles have a right to be included in your tax return for deductions.
Key Points to Consider When Claiming Deductions for Business Vehicles
When you add your vehicle use to your online business tax return, you’ll have to calculate your claims depending on the usage of your vehicle.
The method used to calculate your claim is determined by the structure of your business. Your entitlements and obligations may change if you change your business structure. If you use your vehicle for both business and personal purposes, you can only claim the portion used for business. To prove your expenses, you must keep records for 5 years. If you want more options when claiming a deduction for your vehicle, consider keeping a logbook.
Types of Vehicles that Can Be Included in Business Your Tax Return
The type of vehicle you drive can have an impact on how you calculate your claim. A motor vehicle can be a car or something else.
Cars
A ‘car’ is a motor vehicle designed to carry less than one ton of cargo and no more than nine passengers. Many four-wheel drives and some utes are classified as automobiles.
Other Vehicles
Your motor vehicle is considered an ‘other vehicle’ if it is not a car. Motorcycles and minivans with seating for 9 or more passengers are examples of other vehicles. They can be utes or panel vans designed to transport loads weighing one ton or more.
Expenses for running a Ute are not automatically tax deductible; you must use the Ute for business purposes and can only claim the business portion.
Types of Expenses
There are types of expenses incurred in using your vehicles for your business that can be included in your deductible claim:
- Oil and fuel
- Maintenance and repair
- The interest rate on a car loan
- Rent payments
- Insurance
- Registration
- Depreciation (decline in value of the vehicle)
Business Structure
When claiming deductions for motor vehicle expenses, your business structure influences your entitlements and obligations.
If you are a sole trader or in a partnership (with at least one individual partner), the method of calculating your deduction is determined by the type of vehicle and how it is used. The vehicle can be purchased, leased, or rented through 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).
How to Fit Your Vehicle Use in Your Business Tax Return
You might be wondering what car expenses you can deduct and how many kilometres you can claim on your tax return. This guide is intended to help you understand your options and which is the best option for you.
The three methods for calculating your ATO car expense deductions are as follows:
- The cents per kilometre method
- The logbook approach
- The actual costs method
Cars
If you drive a car as an employee, sole trader, or member of a partnership, you can use either the cents per km or the logbook method if the vehicle carries less than a ton and can transport fewer than nine passengers.
The Cent per Kilometre Claim
The cents per kilometre method of calculating your car expenses is the most straightforward way to calculate your deduction.
The cents per km method provides a standard rate that includes all costs associated with owning and operating a car. This includes the costs of registration and insurance, interest on a car loan, lease payments, servicing your car, repairs, fuel costs, and depreciation, which means you can’t claim those expenses separately if you use this method.
Your cents per km claim will be calculated by multiplying your business kilometres by the year’s rate.
The Logbook Method
The logbook method of calculating your work-related car expenses requires a little more work but can add up to a higher deduction – especially if you drive over 5000km business kilometres in a financial year. By keeping a compliant logbook, you can claim all of the kilometres you drove in a year.
The logbook method bases your claim on the work-related percentage of your car expenses. These costs include registration, insurance, loan interest, lease payments, maintenance, repairs, fuel costs, and depreciation.
Other Vehicles
If you drive another motor vehicle, such as a motorcycle, van, or one that can carry more than a ton of cargo, you must use the actual costs method.
The Actual Costs Method
The actual costs method is similar to the logbook method, with stricter recording requirements. There are two major distinctions between the two. To begin, reporting your expenses based on actual costs necessitates receipts for all expenses, including fuel and oil. Second, a logbook must be kept on a consistent basis in order to calculate the percentage of travel that was for business versus personal use.
In all other areas, the actual costs method is identical to the logbook method for calculating expenses.
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