5 Simple Tips for Claiming Car-Related Tax Deductions

Photo: katemangostar

The first step on your way to claiming your car expenses is getting familiar with a few ATO rules. Sticking to those rules will put you on the right side of the law and help you make clever decisions so you get more money back on your taxes.

Claiming your car deductions is one of the smartest things you can do for your finances. And this is a good enough reason to leave the guesswork out and claim the correct amount on your tax return.

According to the ATO, up to 70% of logbooks have systematic errors. And make no mistake about it, if your logbook falls under suspicion, the ATO will come after you.

So, without further ado, let’s look at some neat ways to keep your tax return records immaculate. It’s time to lift the veil on complex ATO mileage deduction rules.

We bring you five simple tips for claiming car-related tax deductions.

Tip #1: Learn What You Can and Cannot Claim on Your Tax Return

For starters, you need to figure out whether the ATO will green-light your claim. You’re eligible to claim your work-related car expenses if you’re:

  • An employee driving your own car for business purposes
  • A sole-trader driving your personal car to earn income
  • A business owner who uses a company-owned car for work

Yet, there are other rules you should take into account so your claim doesn’t turn out illegitimate.

“In other words, you cannot claim expenses that have already been paid by your employer, including salary sacrificing arrangements.” — Business Insider Australia

Next, to claim your tax return you need to keep track of your personal and business trips. This is hard to pull off if you’re unfamiliar with what the ATO regards business vs. personal trips.

People get confused by all of the do’s and don’ts when it comes to the ATO guidelines. Yet, the worst thing to do is to embrace a hit-or-miss method. Because this is a precursor to being rejected or even penalised by the ATO.

So, let’s explain which car expenses you’re allowed to claim and which ones you aren’t.

The trips that qualify as work-related are the trips you take to:

  • Travel between your workplace and an alternative workplace
  • Travel from your workplace to the client’s premises while on duty
  • Drive to business conferences and run your work-related daily errands
  • Carry out work-related duties while transporting bulky tools needed for your work

Now, learning which trips you can’t claim as a business expense is every bit as important. So, let’s explore these as well. The following trips DON’T qualify as work-related:

  • Taking your regular trips from home to work and back
  • Taking business detours on a private trip (e.g. picking up your business mail)
  • Going back to work due to a work-related matter (security call, parent-teacher meeting)
  • Taking a trip back home after working overtime when no public transport is available

Tip #2: Know How to Claim Your Car-Related Tax Deductions

You have two options for calculating your deduction and each has its pros and cons. We’ll list them out for you so you can figure out which one suits your situation better.

Cents Per Kilometre Method

The cents per kilometre method makes keeping records easier but it limits the amount you can claim. Now, let’s get into more detail so you get the full picture.

cents per kilometre method chart

Logbook Method

Yes, you’ll have to come to terms with extensive record-keeping if you opt for the logbook method. Still, you’ll also be able to get a bigger tax refund. If your car expenses cost you an arm and a leg, here’s a great opportunity to save money in the long run.

Now, let’s dig a little deeper into the logbook method.

logbook method chart

Tip #3: Steer Clear of ATO Penalties

You don’t have to be 100% comfortable when claiming your car expenses. Follow the ground rules and you’ll be able to avoid over-claiming your taxes.

Remember, you need to substantiate your business trips. The ATO is watching you and they won’t shy away from penalising you for poor record-keeping.

“While some people do make legitimate mistakes, we are concerned that many people are deliberately making dodgy claims in order to get a bigger refund. We see taxpayers claiming for things like private trips, trips they didn’t make and car expenses their employer paid for or reimbursed them for.”ato.gov.au

Follow these three golden tax return rules and you have nothing to worry about:

  1. Make sure you don’t claim trips between home and work (unless you’re carrying bulky equipment).
  2. Never claim trips that have already been reimbursed by your employer.
  3. Keep your records straight so you always have proof of your business mileage.

Tip #4: Work Out a Smart Way to Spend Your Tax Refund

tax refunds infographic
Click image to view the whole infographic. Screenshot MoneySmart

When you think about all that record-keeping, your morale may hit rock-bottom. But shifting your focus on how you could spend that tax deduction suddenly lifts your spirits, right?

A little effort put into claiming your tax return can help you bridge that awful gap in your budget.

According to a 2015 poll conducted by Moneysmart.gov.au. 29% of Australians used their tax return to pay bills, 21% put the money aside and 9% used it to settle their home loan debt.

According to the same source, an average tax refund in Australia is $2,574. Any ideas on how you would spend that amount of money?

Tip #5: Get a Logbook App to Make Your Life Easier at Tax Time

GOFAR App Screen Recording – Swipe Feature from GOFAR on Vimeo.

When claiming your car-related tax deduction, you have to provide proof of your business kilometres.

If you settle on the logbook method, you’ll have to take note of the odometer readings, jot down the kilometres travelled and state the reason for the trip. For most people, this is a tedious chore.

That is unless you have a way to automate the process – which you do! There are plenty of vehicle logbook apps out there that can get the logbook keeping chore done for you.

Our award-winning app, which is used in 50+ countries, will help you save time and money when claiming your mileage deduction. With GOFAR, what you get is a high-end product for a highly competitive price.

Created by an Australian rocket scientist, our app boasts the following features:

  • Automatic Logbook Keeping. GOFAR uses a dongle that stores all your driving data, regardless of whether you have your phone with you or not.
  • Easy Trip Classification. Swipe left or right to classify your trips as business or personal.
  • Best Window Selection. Look at the whole year of records and choose a logbook window with the most business drives.
  • Unlimited Trip Logging. Make a one-off purchase and enjoy logging an unlimited number of trips, without subscriptions.

Have you lost enough mileage for a lifetime using poor quality logbook apps? You can end this right now.

Find out more about how GOFAR can help you file your tax return. Or get GOFAR today and watch it bring in the results as you drive.

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
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