To claim a deduction for motor vehicle expenses the tax office requires substantiation of the business use of the vehicle. This can be documented through a logbook. The percentage of business use determines the tax deductibility of the vehicle expenses. (A deduction is an expense incurred while generating income or conducting business activities.)
If you think you’ll have a fair amount of business or work-related use of a vehicle (as a rule of thumb 25%), it may be in your best interest to keep a logbook to enable you to capitalise on your deductible motor vehicle expenses (unless an exception applies as outlined below).
As an employer or company director if you intend to claim expenses for vehicles that are made available for use to yourself or employees it is mandatory that you maintain a logbook for each vehicle to substantiate the business use.
What does a logbook for a car look like
A logbook must be kept for 12 continuous weeks and incorporate at least part of the first year you intend to claim a deduction (if you were to purchase a vehicle after the 7th April your logbook can cross over to the next financial year). The same logbook is valid for up to five years. A new logbook is required if the business use on that vehicle significantly changes or the vehicle is replaced.
The tax office is cracking down on proper record keeping. Your accountant must sight your logbook records if you would like them to consider the logbook method when calculating deductions in your personal or business tax return. The tax office may also contact your employer to confirm that you require the vehicle for your employment duties.
Keeping a logbook is a simple process, as follows:
- Record your odometer reading at the start of the logbook period.
- Each time you undertake any sort travel (business or private), note the reason for the trip and the number of kilometres travelled (most vehicles have trip meters that will do this, otherwise note the starting and ending odometer reading). There are ATO approved apps available for download to assist you with recording your logbook. If you would like more information on this, we invite you to discuss it with your accountant.
Note: For employees (including if you’re employed by your own Company), travel to and from work does not count as deductible travel unless your employer requires you to transport bulky tools and equipment that cannot be stored at work. This should be stated in your employment agreement.
If you drive an “exempt vehicle” (one that has a payload of at least 1 tonne), home to work travel is allowed without any employer agreement because these types of vehicles are typically used by Tradies. Four Door utes like this are becoming popular with non-tradies because of this exemption which is why you see a lot of “Suits in Utes”.
If you’re self-employed and most of your travel is business related you are still required to maintain a logbook for the specified 12-week period. As an example: Your logbook calculates 37% private use and 63% business use. This means you are entitled to claim 63% of all vehicle running costs as a tax deduction. The remaining 37% of the vehicle costs are private and must either be reimbursed by the user or be subject to Fringe Benefits Tax (see the FBT blog on our website).
Do I need a logbook to tax my car
You don’t have to keep a logbook if:
- You have a ute (with one-tonne capacity or more) or commercial vehicle that is primarily used for to-from work travel and business or employment purposes and any private use is only minor and incidental (generally only around 2,000 km/year).
- The vehicle is owned in your personal name (including sole traders) and you would prefer to claim tax deductions using the ‘cents per kilometre’ method. This method allows you claim up to 5,000km per annum at set rate per kilometre. You must keep written records to support your reasonable estimate of work or business-related kilometres. If you’re an employee, your employment contract should also state that you might be required to use your car for work-related purposes.
- The vehicle is owned in your company name (or a trust with a trustee company) and you would prefer to apply the ‘statutory formula’ for fringe benefits tax purposes. The statutory formula applies a percentage to the car’s cost and can make record-keeping easier.
Remember, while 12 weeks is a long time once you have completed your logbook (and assuming your work or business-related use doesn’t significantly vary) it can be relied on for up to five years.
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