2018 was the year in which Australian Taxation Office (ATO) planned to increase the control of claims for work related car expenses. This is a good enough reason to go over your tax claiming practices and make sure you are 100% squeaky clean. You should make sure you have your ATO logbook ready! Why is this particular type of claim under the magnifying glass of the ATO? According to Kath Anderson, the ATO assistant commissioner, the reason is the unusually high percentage of work related car expenses claims during previous years. Anderson told The Australian that more than 40 per cent of all work related deductions were car expenses. This adds up to billions being drained from the tax system. Table of Contents Which Work-Related Car Expenses Can Be Claimed? Calculating Your Deductions How to Record Work Related Car Expenses History of Rates Penalties for Fraudulent or Careless Claiming of Car Expenses Most Common Questions about Claiming an ATO Car Expense “Ms Anderson said enhanced ATO technology made it easier to detect potential tax rorters, revealing nearly 3.75 million people claimed the expense last year at a cost of $8.8 billion.” Kath Anderson for The Australian There are two crucial bits of knowledge you need to take away from this: ATO has increased the scrutiny of work related car expenses in 2018. ATO has enhanced technology that will make this more efficient than ever to do. To keep up with these changes, you need to do two things: Revise your tax claiming practices. Use ALL the available technology at your disposal to accurately track your car related expenses. 1. Which Work-Related Car Expenses Can Be Claimed? You can only claim the expenses that are work related and that have not been reimbursed to you in any other way. This is the same regardless of whether you drive a company owned, leased or your own car. The following work related travel expenses fall into that category: Using a car for business related trips, including conferences, but also company-related daily errands. Using a car to load, transport and unload the work related tools and objects that cannot be otherwise stored at your workplace. Using a car to travel between your two workplaces, your workplace and the alternative workplace and your workplace and the client’s premises while you’re on duty. These DO NOT include: Travelling from home to work and back. Travelling back to work due to a work-related matter (security call, parent-teacher meeting). Travelling back home after overtime work with no public transportation available. Travelling privately and doing small business related errands like picking up mail on your way. Let’s repeat this one more time, since it is extremely important – you can claim these expenses only if they haven’t been reimbursed to you by your employer. “In other words, you cannot claim expenses that have already been paid by your employer, including salary sacrificing arrangements.” Kath Anderson for Business Insider Australia Now, let’s just take a quick moment to clear up some details and explain which vehicles you use that can be considered. You can claim expenses when it comes to: Your own car or a car you leased yourself Your company car or a company leased car Motorcycles and other vehicles that are not considered to be a car It is clear enough what is a motorcycle, but let’s define what ATO considers to be the “vehicle other than a car”. This includes all vehicles that can carry more than a tonne or nine or more passengers. These are mini-vans, trucks, panel vans and similar means of transport. Here is a good illustration of what can and cannot be claimed as ATO car expense. For example, Michael is a Safety Officer in a factory. His tasks include making sure all the danger signs are positioned and that safety is ensured for everyone in the factory. He is also obliged to go to regular seminars and trainings when needed. If Michael uses his car to drive to a work-related seminar that his employer asked him to attend, he can claim car expenses. If Michael drives a company car to work every day, saying that he has to carry danger signs on and off work, the situation is different. Generally, he cannot claim car expenses for this, unless in the following situations: His employer asked him to carry those signs every day It is, for some reason, impossible to store the signs in Michael’s workplace. All that has been explained so far is mostly referring to the company employees. To some degree, there are differences in tax claiming if you are claiming taxes as an employee or if you are claiming as a sole trader or as a company. Those who can claim work related travel expenses are: Companies, trusts and partnerships Employees Sole-traders As a sole trader, most of the rules above apply to you. You can also claim the following: Fuel, oil, repairs and servicing Lease payments and interest on your car loan Insurance and registration However, if you work from a home office you can also claim some of those expenses. Again – only if you are driving the car for business-purposes. For example, let’s say you are an interior designer who works from home. If you are going to a restaurant to discuss business with a restaurant owner and examine the place that needs to be decorated – you are entitled to claim expenses. If you are going for a dinner and you happen to get approached by the restaurant owner who heard you are a designer and wants to hire you – this is not something you can claim. If you are going out to meet friends, spot great wallpapers that are perfect for your restaurant project, go in and buy them – but this is still not a business-related expense. In other words, your purpose needs to be work related in order to be able to claim the expenses. As a company or a trust, you can claim the following: Strictly business-related expenses for a vehicle that the company owns or leases, including the costs for providing the car to the employee. When an employee is given a company car, they can, sometimes, use it for private purposes, as well. In that case, the company may pay for the Fringe Benefit Tax (FBT), which is tax deductible. As always, if in doubt, contact an accountant who understands Australian tax law and can help you adhere to ATO guidelines for work-related car expenses. Get more back! Fuel #tax credit rates increased on 1 August, so don’t forget to use the new rates to calculate your claims on your next business activity statement (BAS). https://t.co/8GJJdE9k1C #Accounting pic.twitter.com/xs39cWDBiX — Penguin Management (@penguinaccounts) October 4, 2018 2. Calculating Your Deductions There are two methods to do this: cents per kilometre method and the ATO logbook method. To decide which method to use, you first need to determine whether you drive over 5,000 kilometres a year for business or not. If you don’t – use cents per kilometre method. If you do – use the ATO logbook method. Click the image to view the whole infographic Knowing what you can and cannot claim is the first step of your road toward neatly and tightly done taxes. The next step is to understand how to calculate your deductions. Here are some more detailed explanations about both of these methods that are recommended to calculate work related travel expenses in 2018. Cents per Kilometre Method Standard rate per kilometre is 68 cents. This rate includes all the expenses of your vehicle, including depreciation. To calculate your claim value, you multiply the 68c amount with the total of business kilometres travelled. While you don’t need written evidence, it is important that you can explain and support your calculations during a possible audit. Using a good and reliable ATO logbook app such as GOFAR is the most convenient way to do this. Here is an example of this type of calculation, only with the old price per kilometre, which was 66 cents: “Motor vehicle tax receipt exception: ‘set rate per kilometre method’ 66c per kilometre x up to 5,000 kms. You must be able to work out your estimate by using a diary or regular pattern of travel. This means that the maximum claim using this method will be 66c x 5,000 kms = $3,300. Example: James is a carpenter and carries bulky equipment to and from work as there is no secure lock-up on site. James has kept a log book for 12 weeks which shows his work travel is 95%. James purchased a Toyota Hilux which has a 2-litre engine on 01/07/2011 for $25,000 which he financed through a hire purchase chattel mortgage at an interest rate of 9%. His odometer reading on 30 June 2016 was 25,000 kms and his car does 500 kms on a 55-litre tank of petrol. The average cost for petrol in QLD was $1.25 per litre.” David Douglas Accountants Here is more valuable information from Thompsons Australia which will help you keep on track when using the cent per kilometre method: “Business kilometres under the cents per kilometre method is determined by ITAA 1997 s 28-25(3). These are kilometres the car travelled in the course of: producing assessable income, or travel between workplaces. The idea of “reasonable estimate” does not have any further clarification in the tax law and takes its ordinary meaning. From a practical perspective: irregular work-related travel would need to be specifically listed down in a written record, and regular work-related travel (say between two work sites) may be calculated with reference to the number of trips made. The written evidence of business kilometres travelled for an income year under the cents per kilometre deduction must be retained for five years. There is no need to lodge it with the income tax return, however, details relating to the calculation will be the initial question asked by the ATO in a review.” Logbook Method You should use the ATO logbook method if you exceed the 5,000 km limit. It means you need the best ATO logbook app, like GOFAR and a way to track all your work related car expenses. Now, let’s get into the details of your ATO logbook. Here is what it needs to contain: Precise time of ATO logbook start and end, with included odometer readings The total sum of kilometres driven Percentage of business-related drives You need to do something quite similar to each of your journeys: Precise start and end of the journey, including the odometer readings Total kilometres Reason for the journey “Your claim is based on the business use percentage of each car expense. This is determined by a log book that must have been kept for a minimum 12-week period, and must be updated every 5 years. Through your ATO logbook you can claim all expenses that relate to the operation of the car, at your percentage of business use.” H&R Block Tax Accountants If you have more than one vehicle, keep in mind that the 5,000 km limit is per vehicle and not per person. Still, if you exceed this, it’s time to learn how to do the ATO logbook method properly. To properly claim your expenses in this way, you need to keep track of all the receipts. The necessary receipts will include those for car maintenance and insurance. As for the fuel, it can be calculated from the odometer readings. Here is an example of the ATO logbook method from ATO Tax Rates Info. Click the image to magnify 3. How to Record Work Related Car Expenses There are different ways to keep a valid ATO logbook. You can use an affordable GOFAR adapter with an ATO logbook app, a mobile app, a simple spreadsheet or even just pen and paper. ATO created a basic app themselves. You can see if it works for you and your business: You can print out the template that was created by the Synectic group and enter your data manually: Click the image to view the whole PDF For those that like to keep all their records in Excel tables, here is one that Della & Associates created: Click the image to magnify However, for those that really want to make this method as easy as possible, they can simply use the GOFAR adapter. It works with cents per kilometre as well and it helps keep valid records. Once you have your logs all sorted out and ready, visit the ATO website and put them into the online Work-related car expenses calculator. Here is an example and a neat explanation about how to use the ATO logbook method: “At the end of the 12-week period the work-related percentage can be determined. To do this, divide your business use kilometres by your total kilometres, then multiply by 100. For example: You’ve travelled a total of 5,000Km; 3,000km relate to work, the calculation is therefore 3,000 / 5,000 x 100 = 60%. Now that you’ve determined your work-related percentage, it’s important to know what expenses you are entitled to include as part of your claim. These expenses include: The running cost such as fuel and oil Registration Insurance Repairs and maintenance Depreciation Interest on motor vehicle loan Lease payments Your total motor vehicle expenses are added up and then apportioned based on your ATO logbook percentage. Continuing on with the above example, your ATO logbook percentage is 60% and your total motor vehicle expenses are $10,000 so your deduction will be 10,000 x 0.60 = $6,000.” Francis A Jones Also, here is a video created by Ascent Accountants, explaining, step by step, how to use a spreadsheet ATO logbook. 4. History of Rates The big change in Australian tax return system happened on 1st July 2015. Before this date, there were 4 different ways to your work related car expense deductions. The first two are still in use today. Logbook method Cents per kilometre method The second two are NO LONGER in use: 12% of original value method – you could claim 12% of the original value of your car, in case your car value is less than $57,466. For leased cars you could claim 12% of its market value from the first time it was leased. one-third of actual expenses method – you were obliged to save written evidence of your fuel and oil costs, or odometer readings, and written evidence of all other car expenses. Cents per kilometre method was allowed only for those who drove less than 5 000 km a year. For more kilometres, the remaining three methods were used. Only the ATO logbook method could be used regardless of the kilometres driven. Another change happened in 2016, which affected the cents per kilometre method. Up to 2016, the price per kilometre depended on the size of your car engine. Ever since 2016, it’s been the same for all vehicles. Year 2018 – 2019 2017 – 2018 2016 – 2017 2015 – 2016 Price per cent 68 cents 66 cents 66 cents 66 cents Before this change, this is how the prices looked like: 2014 – 2015 Ordinary engine <1, 600cc Rotary engine < 800cc Ordinary engine 1,601–2,600cc Rotary engine 801–1,300cc Ordinary engine >2,600cc Rotary engine >1,300cc 63 cents 74 cents 75 cents 2013 – 2014 Ordinary engine <1, 600cc Rotary engine < 800cc Ordinary engine 1,601–2,600cc Rotary engine 801–1,300cc Ordinary engine >2,600cc Rotary engine >1,300cc 65 cents 76 cents 77 cents 2012 – 2013 Ordinary engine <1, 600cc Rotary engine < 800cc Ordinary engine 1,601–2,600cc Rotary engine 801–1,300cc Ordinary engine >2,600cc Rotary engine >1,300cc 63 cents 74 cents 75 cents 2011 – 2012 Ordinary engine <1, 600cc Rotary engine < 800cc Ordinary engine 1,601–2,600cc Rotary engine 801–1,300cc Ordinary engine >2,600cc Rotary engine >1,300cc 63 cents 74 cents 75 cents 2010 – 2011 Ordinary engine <1, 600cc Rotary engine < 800cc Ordinary engine 1,601–2,600cc Rotary engine 801–1,300cc Ordinary engine >2,600cc Rotary engine >1,300cc 63 cents 74 cents 74 cents 2009 – 2010 Ordinary engine <1, 600cc Rotary engine < 800cc Ordinary engine 1,601–2,600cc Rotary engine 801–1,300cc Ordinary engine >2,600cc Rotary engine >1,300cc 63 cents 74 cents 75 cents 2008 – 2009 Ordinary engine <1, 600cc Rotary engine < 800cc Ordinary engine 1,601–2,600cc Rotary engine 801–1,300cc Ordinary engine >2,600cc Rotary engine >1,300cc 63 cents 74 cents 75 cents 2007 – 2008 Ordinary engine <1, 600cc Rotary engine < 800cc Ordinary engine 1,601–2,600cc Rotary engine 801–1,300cc Ordinary engine >2,600cc Rotary engine >1,300cc 58 cents 69 cents 70 cents 2006 – 2007 Ordinary engine <1, 600cc Rotary engine < 800cc Ordinary engine 1,601–2,600cc Rotary engine 801–1,300cc Ordinary engine >2,600cc Rotary engine >1,300cc 58 cents 69 cents 70 cents 2006 – 2005 Ordinary engine <1, 600cc Rotary engine < 800cc Ordinary engine 1,601–2,600cc Rotary engine 801–1,300cc Ordinary engine >2,600cc Rotary engine >1,300cc 55 cents 66 cents 67 cents 5. Penalties for Fraudulent or Careless Claiming of Car Expenses Penalties and their amounts depend on many factors. The factors taken into consideration include whether it is a late payment, incomplete payment or a missing payment. Also, the amount of the taxes plays an important role. And last, but not least, it is critical whether you have knowingly tried to commit a fraud or made a genuine mistake. The ATO relies on the fact that Australian citizens pay their taxes accurately and on time. However, that doesn’t always happen, so some of the measures to eliminate mistakes have been put to work. Mainly, they are to fix the issue and, as the last resort, to penalise the taxpayer. These are: Interest (General and shortfall interest charges) Penalties “CPA Australia head of policy Paul Drum said while penalties of up to 200 per cent of tax avoided may be applied under the law, the size of any penalty would depend on the nature of the breach. “Ordinarily … if a person makes an honest mistake, you’ll have to pay the primary tax, so the tax you avoided plus [interest],” Mr Drum said. For false or misleading statements, the ATO applies a penalty based on a percentage of the shortfall between the correct tax liability and the amount paid by the individual. Penalties range from 25 per cent to 75 per cent of the shortfall amount, depending on whether the breach was due to carelessness, recklessness or intentional disregard.” ABC News Here are some of the claims that were targeted by the ATO: “An employee manager claimed $3,800 in work-related car expenses. When we asked the taxpayer to verify that they owned the car and it was registered in their name, we discovered the car was under a novated lease arrangement. Employees who have a novated lease arrangement are not considered to have expenses in relation to the car, as their employer leases the car on their behalf. Claiming a deduction for these expenses is considered double-dipping. All deductions were disallowed and we applied a penalty.” ATO Media release “Some examples of the ATO uncovering incorrect claims for work related deductions include the following: 1) A medical professional made a claim for attending a conference in America and provided an invoice for the expense. When the ATO checked, they found that the taxpayer was still in Australia at the time of the conference. The claims were disallowed and the taxpayer received a substantial penalty. 2) A taxpayer claimed deductions for car expenses using the ATO logbook method. The ATO found they had recorded kilometres in their log book on days where there was no record of the car travelling on the toll roads, and further enquiries identified that the taxpayer was out of the country. Their claims were disallowed.” CS Accountants 6. Most Common Questions about Claiming an ATO Car Expense First of all, check how much you know about what an ATO car expense is and what can or cannot be claimed: Are you happy with your results? Claiming work-related expenses this #TaxTime? Check the deductions you’re eligible to claim before you lodge: https://t.co/xqS2JjXL5g #GoTS7 pic.twitter.com/HtyXsVIBFD — ato.gov.au (@ato_gov_au) July 17, 2017 Let’s look into some of the questions people asked when it comes to claiming their work related car expenses in 2018. Q: Can I claim my car for work travel? Answer by RJSanderson: You can claim your car for travel between your home and your workplace if: you used your car because you had to carry bulky tools or equipment that you used for work and could not leave at your workplace (for example, an extension ladder or cello) your home was a base of employment (that is, you started your work at home and travelled to a workplace to continue your work for the same employer) you had shifting places of employment (that is, you regularly worked at more than one site each day before returning home). Work-related car and travel expenses also include the cost of trips: between two separate places of employment (for example, when you have a second job) from your normal workplace to an alternative workplace while you are still on duty and back to your normal workplace or directly home from your home to an alternative workplace and then to your normal workplace or directly home (for example, if you travel to a client’s premises to work there for the day). If the travel was partly private, you can claim only the work-related part. You cannot claim normal trips between your home and your workplace, even if: you did minor work-related tasks at home or between home and your workplace you travelled between your home and workplace more than once a day you were on call there was no public transport near work you worked outside normal business hours your home was a place where you ran your own business and you traveled directly to a place of employment where you worked for somebody else. Q: What counts as business mileage? Answer by MJA Business Solutions: Be aware that the ATO does NOT generally consider kilometers driven between work and home as “business” travel. Even if you stop off to pick up the mail on the way, or have to take multiple trips each day, travel between home and work is still considered private use. There are exceptions. For example, if your home is your primary workplace and you need to travel to another workplace this would be classified as business use. Q: If the business owns the car how much can I claim for depreciation? Answer by MJA Business Solutions: The business will be able to depreciate the business-use percentage of the value of the car. It is really important to remember that if you are classified as a small business by the ATO then you will be able to immediately claim the entire purchase price of a vehicle costing less than $20,000 including GST. A good incentive not to buy more car than you really need! Q: If I’ve got sign writing on the car can I write off the costs for my personal mileage? Answer by MJA Business Solutions: Wouldn’t this be nice? Unfortunately, the answer is no. If you put business advertising on your motor vehicle, the actual cost of the signwriting is tax deductible. However, to claim a deduction for the motor vehicle running costs all the normal rules apply. Q: I am working in Sydney and visit a vendor in Sydney on working day to discuss a business matter is this FBT related Expense? How about a business meal? Answer by ATO: f you are paying for your own meals, then it is not a fringe benefit. As meal expenses are generally considered to be a private expense, you will not be able to claim a deduction for your meal, even if it is relation to a business matter. If your employer is paying for your meals, or reimbursing your costs, this is a non-cash benefit and may require your employer to pay FBT. This will depend on the amount and frequency that your employer is paying for your meals. More information on FBT can be found at Fringe benefits tax. Q: I’m a subcontractor – every day I pay my own petrol and travel expenses to and between my jobs – however I get this reimbursed back. However – On my weekly payslip it’s under “mobility allowance”. Do I claim this as a part of my income? Answer by ATO: As your allowance appears on your payslips, you will need to declare it as part of your taxable income. You may be entitled to claim certain deductions for vehicle and travel expenses. Please refer to vehicle and travel expenses to see if you are eligible and what you will need to claim these deductions.” Q: My job requires me to travel frequently for a long distance. As a result, my employer reimburses my fuel expense. However, since fuel expense is only a small part of the operating expense, I am wondering if I could use the cost/kilometre method for claiming car expense. Answer by ATO Community Member: To claim a work-related deduction: you must have spent the money yourself and weren’t reimbursed it must be directly related to earning your income you must have evidence If you are paid a travel allowance, have a record to prove it. If you receive a travel allowance: you must declare the allowance on your tax return as income you are entitled to claim a deduction for the actual expenses you incur, less any private component. If you get paid an allowance for some travel expenses (including overtime meal allowances, and domestic and overseas travel allowances), you do not have to keep written evidence of your expenses provided your claim does not exceed the reasonable allowance amount we set for each year. If you want to claim more than the reasonable allowance amount we set, you need to keep evidence of your expenditure. More questions and answers can be found on the ATO community website. You can see the concerns other people had and the answers given to them by other members of the community. You can also post your own questions about the specifics of your taxes and ask for useful tips and opinions. You Need an ATO Logbook, ASAP. Since the tax system in Australia depends on Australian citizens to be diligent about lodging their own taxes, it is important that you do so properly. While this sounds reasonable, the Australian Taxation Office still reports that over-claiming taxes is one of the main forms of tax system abuse. In 2018, the ATO announced increased monitoring of all work related car expenses claims. You definitely want to make sure your taxes are 100% in order and that’s why you should review your practices and make sure your tax lodging is absolutely flawless. Here is a checklist you can always come back to: First of all, you can claim expenses for your own car or a company car. This includes cars that have been bought, but also leased cars. Keep in mind that a car is considered to be a vehicle that can carry less than a tonne and/or nine passengers. Two factors are essential to remember: You can only claim the expenses that occured while you are doing business and not the ones that occured while you used the vehicle for private purposes. You can only claim expenses that you paid for yourself and for which you weren’t reimbursed by your employer in any way. While keeping these two factors in mind, you can now start to calculate your taxes, using one of the two methods. The cents per kilometre method for those vehicles that are not used for more than 5,000 kilometres a year. The ATO logbook method for all those cars whose odometer shows more than 5,000 kilometres a year. You don’t have to hold on to all the receipts if you are using the cent per kilometre method. However, if you are being audited, you have to be able to support your claims and explain your calculations. As for the ATO logbook method, it is necessary to have a precisely and diligently filled out ATO logbook that monitors a period of at least 12 weeks. This ATO logbook needs to be updated every 5 years. For each trip, you need the following: Precise start and end of the journey, including the odometer readings Total kilometres Reason for the journey Additionally, you will need the receipts for all the expenses. Unfortunately, this means that you have to think about all these details every time you drive your car. You need to record the odometer reading, your destination and the reason why you are going there. It takes a lot of time and if you forget any of these steps – you could be in trouble. One of the easiest, hassle-free and, in the long run, cheapest ways to do this every day is to use your smartphone and an app like GOFAR. The app tracks all those details you need for your tax and more. What’s even more convenient, you just jump into the car and start driving. When you’re done, you just swipe left or right and let the app know if that was a business or private trip. GOFAR then holds on to those logs and you can email them to yourself in two taps on your phone screen. They’re delivered in a convenient spreadsheet format that makes calculations a breeze. Make your tax time less stressful and stay sane by using GOFAR.