How to Claim More Car Expenses: Tax Time Tips for Tradies

Photo: GoSimpleTax

The cost of owning a car in Australia is pretty steep. and tradies like handymen, plumbers, and electricians know this very well.

These professionals are among the most affected by rising car maintenance prices. And it’s because they spend a great chunk of their work hours driving between clients.

Now, you don’t need to downsize to one car to save money on your car expenses. Nor do you need to put your DIY car repair abilities to the test. It will suffice to get your money back on your taxes.

Did you know that you can claim car expenses each time you pick up supplies or visit a client site? So, your claims aren’t limited to trivial expenses!

Below are some tax time tips for tradies! Read on to learn how to get more money back on your tax return and maximise your car savings.

Learn Which Method Gets You a Bigger Tax Deduction

There are two methods for claiming car expenses available to Australian taxpayers: the cents per kilometre and the logbook method.

Ideally, you’ll choose the one that will maximise your tax return and increase your tax savings. To make an informed decision, don’t consult your gut feeling, but a calculator.

We’ll explain the difference.

  • Cents per kilometre method
    • This method is based on a fixed rate per kilometre. In the 2020 income year, you can claim 68 cents per kilometre for your work-related car expenses.
    • This claim is limited to a maximum of 5,000 business kilometres per car.
    • No need for extensive record-keeping, but you have to be able to show proof of your business mileage to the ATO.
  • Logbook method
    • This method allows you to claim a business percentage of all your car expenses.
    • To separate your car’s private and business use, you need to keep records during a consecutive 12-week period.
    • You should record the odometer readings, kilometres travelled and reason for the trip.
    • You also need to keep receipts of all your car expenses during the year.
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What immediately draws attention is the long list of tasks for keeping your business mileage records under the logbook method.

But there’s another side of the coin that shouldn’t be overlooked. Importantly, the logbook method allows you to claim all your running car expenses.

To be more precise, it allows you to extract a maximum tax refund from the ATO.

Now, as a tradie, odds are your work-related drives aren’t exactly few and far between. And the more trips you make for business, the more expenses you’re able to claim.

Know Which Car Expenses You Can Claim at Tax Time

To make a correct claim, you need to stick to the ATO rules and clear up any misunderstandings you might have.

So for starters, you can write off only costs you incurred while using your own car for work. If the car is in somebody else’s name, all you can hope for from your tax return is direct costs you covered – such as fuel costs.

And to get the full picture of how much money you can claim, it’s good to know which expenses are tax-deductible. So, let’s jump right in.

  • You can claim your costs such as fuel, insurance, servicing, and loan interest.
  • Your car will depreciate in value over time, so this is another cost that you can claim.
  • Your lease costs are considered part of your running costs, so they’re also tax-deductible.

Now, this is the point where you should really pay attention. Knowing which trips you can log as business-related is half the battle of your neatly done taxes. In other words, get this one wrong and you’ll have to explain to the ATO why your records look dodgy.

Keep the following rules in the back of your mind:

  1. Regular trips between home and work are private trips and cannot be claimed. This comes with a few exceptions. For example, if you own a home-based business and you take a business-related trip from your home. Or if your employer requires you to carry bulky equipment to work.
  2. If your trip expenses have already been reimbursed by your employer, you can’t claim them from the ATO.
  3. Maintain immaculate mileage records to steer clear of ATO penalties.

To learn more about which trips fall under work-related, head over to this article.

Bonus Tip:

Are you driving a 9-seater van, ute or panel van? The ATO defines these as “exempt vehicles”. Those are either vehicles that have a carrying capacity of at least one tonne or those that carry 9 passengers or more.

So, if you’re driving one of these, you’re in luck. You can claim your trips between home and work (yes, you heard that right)! And you don’t even need an employer agreement to do so!

Remember to Claim Depreciation of Your Motor Vehicle

Did you know you can claim your car depreciation costs if you opt for the logbook method? This applies to tradies who run their own business and acquire vehicles needed for earning their income.

What this means in practice is that you can reimburse the total cost of your business-owned car, provided that it’s used entirely for business. The rationale behind this deduction is the fact that your vehicle declines in value over time.

There are two methods you can use to write off your asset depreciation costs:

  • The prime cost method, based on the premise that the value of your asset decreases steadily over its effective life.
  • The diminishing value method, based on the premise that the value of your asset decreases dramatically in the first years of its effective life.

The first method allows you to claim a fixed amount each year. The second one allows you to claim higher amounts in the first years and then dropping progressively until you write off the entire cost of your asset. In this case – your car.

If you don’t use the asset 100% for business, you need to work out the percentage of how much you used it in a given income year. So, you can only claim the amount which correlates with that percentage.

Leverage the Instant Asset Write-off on Your Business Car Purchase

Here’s some more great news! If you own a tradie business with a turnover between $10 and $50 million, you can claim the cost of an asset you use for business immediately.

Yet, you’re only eligible for the instant asset write-off if the cost of an asset falls within the threshold amount of $30,000.

And yes, it can be your business car!

Also, bear in mind that you must use the asset in the running income year to be able to claim it immediately.

And there’s no time to waste! The generous threshold above is about to drop to $1,000 from 1 July 2020. So, go catch the wave while you can!

Choose a Logbook App That Helps You Claim More Car Expenses

There seems to be a general opinion that keeping a logbook is a wearisome, time-consuming chore. And we don’t dare to disagree – if and only if you’re using pen and paper to log your mileage.

There’s nothing essentially wrong with choosing it as your preferred method. It’s simply not that practical anymore.

If you’re looking for an easy way to get the job done, a logbook app will fit the bill, in 2020 and beyond. And if you have your eye on a handsome tax refund, a decent logbook app will fetch that money for you.

So, if you’ve been checking out the best logbook apps out there, you’ll soon have a reliable way to capture all your trips. And capturing all your trips – or more importantly, NOT missing out on any – means claiming higher car expenses!

Check out this video to see how easy it is to use the GOFAR logbook app.

Is GOFAR the Right Logbook App for You?

Follow our tax time tips for tradies and not only will you be able to get more back on your taxes – but you’ll also be able to do it almost effortlessly.

A good logbook app will help you keep accurate business mileage records. Yet, a truly solid app can be hard to come by.

If you have some first-hand experience with using logbook apps, you know how frustrating it can be to have an unreliable app. Have you ever encountered one that stops logging your trip when you haven’t even gone past the first junction?

So, spare yourself the inconvenience and get an app that logs your trips seamlessly. GOFAR is here to do the admin work for you, so you won’t have to. Here’s how the app works; it:

  • Records your total kilometres, time and date stamps, odometer readings and more
  • Allows you to run through your digital log and classify a trip as business or personal with one swipe
  • Stores your data on an OBD2 port device, which means you can even forget your phone and still have your logs recorded
  • Allows you to export reports to your email in a few taps

So what’s the next step? Check out our Vehicle Logbook Resource Centre to learn more about how to get the largest tax return possible. Or get GOFAR today and never miss a trip again.

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

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