As a business owner, you'll want to claim tax deductions for your vehicle expenses. Of course, it's very important that you claim deductions correctly; otherwise, you could find yourself in tax trouble. Using an accountant is the best way to ensure everything is submitted correctly, but you also need to make sure you do things correctly on your end by using the right method to calculate your expenses. There are three methods available (actual costs, cents per kilometre, and logbook), but which one you use will be determined by your vehicle type and business type. Here's all you need to know.
What method should companies and trusts use?
If your business is a company or a trust, you must use the actual costs method to work out your vehicle expenses. The actual costs at hand are based on the receipts from all expenses incurred using your vehicles for business purposes. If you have vehicles that are used for business and personal purposes, you'll need to keep adequate records so that you can calculate which percentage of the actual costs come from business use. You can only claim the business costs alone, so careless mistakes in segmenting business and personal costs could lead to problems with your tax return. Note that when using the actual costs method, you can also claim for the purchase price of the vehicle over time. This deduction can be calculated using simplified or general depreciation rules.
What method should sole traders and partnerships with cars use?
If your business is a sole proprietorship or partnership and the vehicle you're claiming for is a car, there are two methods you can use. The first is the cents per kilometre method, which allows you to claim a set rate for every kilometre you've travelled for business purposes. You can claim up to 5,000 kilometres per car per year, and you don't need written evidence to show your exact kilometres travelled. Alternatively, you can use the logbook method. With this method, you need to keep a keep an electronic or pre-printed logbook that records kilometres travelled, odometer readings, information about the car and dates and reasons for each journey. To work out how much you can claim, you need to work out your business use percentage and multiply it by your total car expenses for the year, as calculated using the logbook. Note that you're free to use different methods for different cars in the same year, and you can change methods from year to year.
What method should sole traders and partnerships with other vehicles use?
If you're claiming for a vehicle that isn't a car, such as a motorbike, you can't use the cents per kilometre or logbook methods. Instead, you'll need to use the same actual costs method that you'd use if your business was a company or trust.
To learn more about vehicle expenses, contact an accountant in your area.