2018 was the year in which AustralianTaxationOffice (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.
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.
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.
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
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.
GoFar has published a handy guide to claiming work-related car expenses. This handy guide has everything you need to know about claiming ATO car expenses. Here’s the link: Ultimate Guide to Making a Qualified ATO Logbook