Work related car expenses to be closely examined by the ATO

The Australian Taxation Office (ATO) has recently announced that they are closely examining claims for work-related car expenses during this upcoming lodgement period. Additional audit resources will be employed along with updated data analytics to scrutinise large car expense claims.

What you can claim

You are entitled to claim the costs of using your car if you use your car for work purposes. There are two ways to calculate a deduction for car expenses:

The cents per km method – Your claim is based on a set rate for each business kilometre you travel ($0.66 for the 2018 financial year) and is limited to 5,000 kilometres. No written evidence is required; however, you must be able to reasonably show how you came up with the number of work-related kilometres.
The log book method – Your claim is based on the work-related percentage of actual expenses incurred, determined by a valid log book.

Cents per Km Method

Each year around 870,000 people claimed the maximum amount under the cents-per-kilometre method. The ATO is concerned that some taxpayers are making mistakes or deliberately over-claiming their work related car expenses. Some people may have misused the claim and mistakenly believe that this is a “standard” deduction they are entitled to, without needing to provide any evidence or even having incurred any travel at all.

Although it is true that under the cents-per-kilometre method full substantiation is not required, the taxpayer needs to have actually driven the kilometres in order to carry out their job and be able to show how the claim has been calculated.

There are a few rules to remember to make sure your get it right.

You have to have spent the money yourself and can’t have been reimbursed.

You can’t claim expenses if your employer has reimbursed you in full as there is no out of pocket cost to you.
You must own the car in your own name to claim under either of the methods. You are unable to claim anything if your employer provided the vehicle (including if it is under a salary sacrifice arrangement or novated lease).

The claim must be directly related to earning your income.

Travel between home and work is generally considered private travel and not tax deductible, regardless of how far you live from your workplace.

You need to be able to prove it.

You’ll need to be able to demonstrate how you worked out the number of work-related kilometres you drove. While this does not mean keeping an exact log of every trip, you should have a record of how you calculated the km on a reasonable basis (eg. 1 trip per week x 26km)

Log Book Method

For taxpayers travelling more than 5,000 kilometres for work during one financial year and intend to claim car expenses, the ATO requires that you keep a logbook to support the claim. This must be kept for a minimum of 12 continuous weeks during the year and can be used for up to 5 years. You can choose to use the logbook method even if your work related travel is less than 5,000km. This method generally offers a higher deduction if you have a high business use percentage.

To claim a car expense deduction using the logbook method, you are required to maintain written evidence of all expenses claimed. This may be in the form of a purchase contract, finance document and receipts for your cars running costs.

The ATO’s concerns around taxpayers using the logbook method are generally:

Taxpayers overstating their log book work-related percentage;
Taxpayers overstating the actual expenses incurred;
Taxpayers claiming deductions where they have received reimbursements from employers.

If you are considering keeping a logbook, some key pointers are:

Consider maintaining a logbook if you expect to have a lot of work related travel.
Keep written evidence of all car expenses.
Review and maintain a new logbook every 5 years or when your travel pattern has changed (e.g. starting a new job or being promoted to a new position).

Real-life examples from the ATO

Below are a few real-life examples of deductions rejected by the ATO:

False logbook: “A traffic supervisor claimed over $11,000 for work related car expenses, and provided a logbook to substantiate his claim. However, upon investigation we discovered that the logbook wasn’t printed until the following year. The taxpayer admitted the logbook was fraudulent and it was ruled invalid”.
Claiming for home to work travel:
“A Laboratory Technician claimed $3,300 for work-related car expenses, using the cents per kilometre method for 5,000 kilometres. He advised that his employer did not require him to use his car for work; this claim was based on him needing to get to work… His claim was reduced to $0 and we applied a penalty for failure to take reasonable care”.
Claiming expenses paid for by employer: “We recently investigated a taxpayer who claimed $3,800 for transporting bulky tools to and from work. He advised that he was required to transport the tools as there was no secure area to store them at his place of employment. However, when we spoke to his employer they advised that the taxpayer was provided with a company car at all times and was not required to use their own car to transport tools. Additionally, the employer provided all tools and did not require the employee to transport them. We reduced the taxpayer’s claim to $0 and applied a penalty as the taxpayer did not actually incur any work-related car expenses.”

As with all things tax, keeping good documentation is key. And most importantly, contact us if you have any questions!