ATO Cents Per KM Method: How to Maximise Your Tax Return

Photo: Flickr/ 401(K) 2012

What if we said that you could get $3,000 or more back on your car expense deductions? A handsome figure, wouldn’t you agree?

Money you could spend on your priority projects or to smooth out those awful cash flow gaps in your budget.

Waiting with bated breath to hear what’s next? Well, we won’t keep you waiting too long. Now, what if we also told you that you can get your cash back in a pretty hassle-free, straightforward way?

Today we’ll show you how to make the most of the cents per kilometre method. We’ll also explore a few ideas on how to maximise your tax return. They’ll give you plenty to go on.

After you’ve read this article, you’ll have an action plan on how to get more money back on your taxes. You’ll be off to a flying start on a lifetime of doing it smart with your tax refund.

Cents Per Kilometre vs. the Logbook Method: Which One is Right for You?

If you’re using your own car for business purposes, you can take advantage of a decent tax return from the ATO. Yet, you can claim as a business expense only the expenses you incurred while driving your car for work.

It’s every bit as important to know you can claim a deduction only if you’re using your own car:

  • To earn income as a sole-trader (e.g. tradies, ride-sharing professionals).
  • To undertake business trips as an employee in a company.

Now, to determine the percentage of your personal and business trips, you need to keep business mileage records.

To do this, you can opt for two methods. We’ll do our best to present their pros and cons so you can work out which one best suits your needs.

ATO Cents Per Kilometre Method

Perhaps you’re wondering how many kilometres you can claim without a logbook? Or what your maximum claim would be if you used the cents per kilometre method? Well, we’re about to answer these and other questions that might be bugging you.

Ready to look at the pros and cons of the cents per kilometre method? Let’s dive right in.

Pros:

  • No need to keep a detailed logbook.
  • No need to keep receipts for your car expenses.
  • It’s easier to calculate the deduction.
  • All you need to do is keep diary records of your work-related trips.

Cons:

  • You can claim a maximum of 5,000 business kilometres annually.
  • Your claim is limited to a set rate, which is 68 cents per kilometre for the 2019 income year.
  • You can’t claim separate deductions for insurance premiums and depreciation.

Logbook Method

The vehicle logbook method is a more complicated story. But if you were wondering how to get $10K back from your taxes, keep on reading. To get closer to that figure, though, you’ll need to have some serious business mileage and know some logbook keeping tips and tricks.

But now, let’s zero in on the pros and cons!

Pros:

  • You can claim your actual expenses.
  • It can get you a potentially bigger tax benefit.
  • You’re allowed to claim car depreciation as well.
  • You only need to update your logbook every 5 years.

Cons:

  • You need to keep a valid logbook for at least 12 weeks, so the record-keeping is more time-consuming.
  • You need to know the rules so you know which trips qualify as business mileage.
  • You need to keep receipts of all your car expenses throughout the year.

Some bonus hacks:

This is where you’ll want to figure out which method gives you the largest tax return. Think of it this way: it depends on your current situation. If your schedule is hectic round-the-clock, then the logbook method isn’t the best idea. You simply won’t be able to squeeze it in.

Here are a few more factors to take into account:

  • If you have a low-maintenance car, the cents per kilometre method is a good fit for you. It’s easier to do and you won’t have much use of the logbook method since your car bills aren’t too steep.
  • If you have a high-maintenance car, the logbook method will allow you to reimburse the majority of these expenses. So, it’s worth the hassle.
  • The cents per kilometre method is more beneficial for people with lower vehicle use and vice versa.

How Do I Claim My Car Expenses Using the ATO Cents Per KM Method

As hinted above, the cents per kilometre method allows you to get your money back on your tax return with minimal effort.

But you still need to offer proof to the ATO on how you worked out your business kilometres. Once you set your sights on a healthy tax refund, trust us, you won’t feel like you’re doing much work at all for your record-keeping. It’s that easy.

All you need to record is:

  • The total kilometres you’ve driven over the course of the year
  • The number of kilometres you’ve driven for business
  • The number of kilometres you’ve driven for private purposes

Tracking your total kilometres is simple. Just jot down the start and end odometer readings on the day the financial year begins and ends.

Now, here’s how to calculate your tax deduction using the cents per kilometre method.

Simply multiply your business kilometres by the amount per kilometre allotted by the ATO.

We’ll translate this into numbers. Let’s say you cover the maximum of 5,000 kilometres for the 2020 financial year. This is your calculation: 5,000 kilometres x $0.68 = $3,400.

This is how much you’d be able to claim at tax time.

It’s worth it! Down to the last penny.

Bonus tip:

If the cents per kilometre is your preferred method, bear in mind that you should opt for it in the first year you use your car for business. After that, you’re free to pick the cents per kilometre again or switch to the logbook method.

Which Trips Qualify for a Tax Return?

If you mean to track those drives to get your tax return, you better learn how to separate the wheat from the chaff. In other words, your business from personal trips.

You need to be clear on when you can and when you can’t claim a deduction. That is to say, which trips the ATO considers business-related and which it doesn’t.

Kilometres that count as work-related are those conducted solely for business purposes. For example, kilometres driven:

  • To meet a client, visit a customer, or attend a conference.
  • To attend a meeting with your accountant or lawyer.
  • To visit the bank, or pick up supplies (e.g. visiting stationery or a computer store).
  • To travel between alternative offices.

In case you’ve been sleeping up to this point, it’s time to wake up now! Keep your ears peeled! These are the kilometres you CANNOT log as work-related, under any circumstances:

  • Driving between home and work (except in limited circumstances where you’re required to transport bulky tools or equipment).
  • Any trip to the post office or store when you’re heading back home from a business-related trip. You can’t claim a deduction for any remaining kilometres from the post office or store to your home.

Want to learn more about what makes your business claim legitimate or not? Make sure you check out this article.

Use a Logbook App to Get More Money Back on Your Taxes

An ATO logbook app is the most painless option out there for Australian taxpayers. It’s a shortcut to getting your hard-earned money back into your pocket.

Find a proven way of keeping meticulous records, and you’re well on your way to your neatly filed tax return. That’s exactly what a logbook app does.

An app like this will track all the information you need to record under the cents per kilometre method. It’ll capture your total mileage and take snapshots of your odometer readings.

All you need to do is classify your trips as business or personal.

Hand on your heart, can it get any easier?

Hear Louise Chilton’s story on how she saved time and money using the GOFAR logbook app.

Raise Your Game: Settle on a Logbook App That Maximises Your Tax Return

People often opt for the cents per kilometre method because they have time-scarcity issues. For such people, wasting time on keeping extensive records is not an option.

But what would you say if we told you that you can even save more of your valuable time?

Enter GOFAR. The app will automate your mileage logging and keep immaculate records of your trips.

When you’re confident the app will do its job and not miss any trips, it’s a great incentive to get out there and log those kilometres. With GOFAR, you get peace of mind knowing that you’re safe from any ATO crackdowns. And the technology is a breeze to use!

The app enables you to:

  • Log, compute and export business expenses at the press of a button.
  • Never miss a trip, thanks to its set-and-forget device that logs every trip.
  • Categorise business trips in seconds.
  • Keep ATO records on both iPhone and Android.
  • Track unlimited trips and send unlimited exports while avoiding app subscription.

Learn more about how GOFAR can jump in and save the day. Or get GOFAR today to maximise your car expenses and save hours on your mileage logging. Treat yourself to a turnaround of your mileage logging fortunes.

Track Work Mileage With GOFAR

  • Log, calculate and export business expenses at the press of a button
  • No ongoing fees
  • Available on iOS and Android

Get GOFAR now

GOFAR mileage tracker app on a white smartphone screen
Check Car Buy Now