Motor Vehicle Expenses: What Every Tradie Needs to Know

Photo: Senivpetro

If you drive your car to generate income, you have a chance to earn money back on your tax return. It’s in your best interest not to squander it.

Paying out of pocket for your motor vehicle expenses can be budget-draining. Especially if you cover a handsome mileage as a tradie, a handyman or an electrician.

You can’t always afford the time to bother with your tax return. Yet, paying too much on your taxes isn’t something to turn a blind eye towards.

Below are some great tax return hacks every tradie needs to know.

Make Sure Your Claim Is Legitimate

Before you launch your tax return, you need to know how to make a legitimate claim. To do so, you need to know which trips you can categorise as work-related.

The ATO is particularly fussy if you get this wrong.

Luckily, it’s a matter of remembering a few clear-cut rules. Below are the trips the ATO considers business-related:

  • Travelling between different offices
  • Running your work-related daily errands
  • Taking work-related trips for workshop and conference purposes
  • Visiting a client’s site on a work-related matter
  • Carrying bulky equipment and tools needed for your job

Now, here’s more to consider. Below are trips for which you can’t claim your car expenses:

  • Travelling between home and work
  • Running minor business errands during a private trip (e.g. picking up your mail)
  • Taking a trip back to work for a business-related reason (e.g. returning to work from a parent-teacher meeting)
  • Using your car to drive yourself home when there’s no public transportation available

What Are the Rules If I Carry Bulky Tools for Work?

As a tradie, you’ll likely want to know about this topic. Because odds are, you’re lugging around equipment on your daily drives.

Here’s some good news: if you transport bulky tools for work, you can claim the trips you take from home to work and back. A concession few other professionals can take advantage of.

Yet, you need to make sure you tick all of the following boxes when it comes to meeting conditions for this claim:

  • Your employer requires you to transport work equipment.
  • The equipment is essential for carrying out your daily tasks.
  • There’s a lack of appropriate storage space for the equipment.
  • The equipment is bulky (at least 20 kg) and/or difficult to transport.

What Are the Rules for Employee Tradies, Sole Traders and Businesses?

You’re an employee tradie and you’re unsure of the mileage deduction rules that apply to your case. Or you run a small business that’s offering tradie services and are wondering about the same issue.

No worries, we’ll clear the rules up for you.

Employee tradies

As an employee tradie, you’re eligible for the deduction if:

  • You incurred your car expenses during work-related trips
  • You paid for car expenses on your own and weren’t reimbursed by the employer
  • You’ve proven your claim with legitimate records

Small businesses

Whether you’re a sole trader or a company, you must meet certain conditions to claim your car expenses:

  • You incurred your car expenses in the course of performing your business.
  • If you use your car for private purposes as well, your claim is reserved for work-related trips only.
  • You must prove your claim with legitimate records.

There’s much more to take into account before you can get money back on your tax return. But once the money is safely deposited in your pocket, you’ll be happy you went to all the trouble.

So, keep on reading for more mileage deduction hacks.

Know How to Track Your Motor Vehicle Expenses

The ATO only want you to account for the business mileage you made. It’s up to you which method you choose.

Now, we’ll present a brief overview of the two methods, so you can get a taste for them.

A word of caution: whichever method you choose, you will need to make a trade-off of some sort. Yet from what we can tell, it’s fair on both ends of the spectrum.

So, let’s get to it.

Cents per kilometre method

  • It allows for simplified record-keeping.
  • The cents per kilometre rate for 2022 is 72 cents; this is how much you can claim for your business kilometres.
  • Your claim is limited to 5000km per year.
  • You need to be able to explain how you worked out your claim.

Car logbook method

We have a detailed article about the car logbook method so we’ll only cover the “car logbook basics” here:

  • It’s based on business use percentage, so you can claim all costs you incurred while driving for work.
  • You only need to complete the logbook process once every five years.
  • You need to keep a logbook for 12 continuous weeks.
  • You need to keep receipts for all expenses related to your car.

To figure out the percentage split of your business and personal trips, follow this link.

Record Your Odometer Readings

According to the ATO rules, you need to record your odometer readings at the start and end of the tax year. Both methods described above require you to work out the percentage of your car use that is for work.

The odometer readings serve this purpose. They’re a handy way to capture the total mileage driven for the year.

They’re also a great tool to help you calculate your business-use percentage. It’s the data you’ll need if you pick the logbook method as the go-to solution for your tax return.

Keep Your Driving Log

Remember that trade-off we mentioned a few sections above? Well, here’s where it gets tricky.

The cents per kilometre method enables you to keep your records with your eyes closed, so to speak, but it also limits the amount you can claim. The logbook method, in contrast, involves complex record-keeping, but it also enables you to claim a bigger tax refund.

It’s a tough decision but only yours to make.

This is the information you need to record in your driving log:

  • Your trip dates
  • Start and end odometer readings
  • Kilometres travelled
  • Reason for the trip

This doesn’t mean you’re off the hook if you opt for the cents per kilometre method. You still need to provide proof to the ATO of how you worked out your work-related mileage.

The amount of effort needed depends on whether you take regular or irregular work-related trips.

If you go for routine drives with fixed mileage, this in itself will serve as sufficient proof. For example, you might take a routine 70-kilometre round trip to pick up supplies once a week, 40 weeks a year.

vehicle logbook template in landscape form
Download FREE Vehicle Logbook Templates

Inversely, if you take irregular work-related trips, you’ll need to make a note of each trip. This is typically done by keeping a diary of your work-related trips.

The easiest way to keep a logbook is to get a logbook app. But the next best thing is to download a free car log book template from our resources page.

Hold on to Your Motor Vehicle Expenses Receipts

To claim your motor vehicle expenses under the logbook method, you need to get two things sorted:

To arrive at the amount you can claim, follow the steps below in chronological order:

  1. Keep a driving log.
  2. Figure out your business-use percentage:
    • divide your business mileage by your total mileage
    • multiply this by 100
  3. Add up your total motor vehicle expenses for the tax year.
  4. Multiply your total expenses by your business-use percentage.

Now, let’s see how this formula plays out in a real-life scenario. Let’s say you’ve stacked up $9,000 worth of car expense receipts.

vehicle expense tracker template in lanscape form
Download FREE Vehicle Expense Tracker

You’ve checked your odometer readings and calculated the business percentage of 70%.

Using the steps above, it follows that your claim is worth $6,300. Not too shabby, right?

To generate a report of your total car expenses, get our free vehicle expense tracker.

Get a Logbook App That Simplifies Your Record-Keeping

Now you have all the knowledge a tradie needs to claim a part of your car costs as a business expense. Claiming your motor vehicle expenses is all about knowing your way around the tax rules.

That, and keeping good records.

But there’s a missing link. You won’t get too far (at least not without going through plenty of blood, sweat and tears) without a decent logbook app.

Choosing the best logbook app to track your mileage is the simplest way to set your records straight.

To be honest, if you rely on analog record-keeping, you’ll forget to log a trip here and there. Rely on GOFAR and you won’t miss a trip.

It encompasses all that you need in one app.

Visit GOFAR App Store

Here’s why GOFAR stacks up as a worthwhile investment for tradies who spend hours on the road. The app enables you to:

  • Log your trips without fiddling with your phone
  • Categorise your trips with just one swipe
  • Export your mileage reports at the click of a button
  • Select the most lucrative driving log to claim

Yet, the app doesn’t stop there. It also gives you:

  • An insight into your car’s diagnostics so you save on your car repairs
  • Real-time feedback that allows you to adjust your driving style and save on fuel

Get the GOFAR app today and gain control over your car costs, taxes and finances.

Track Work Mileage With GOFAR

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

Get GOFAR now

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