Around 3.5 million Aussies claim vehicle-related tax expenses each year, but they might not be taking full advantage of the available deduction.
If you drive for work, there’s a $4,400 tax deduction up for grabs that could boost your tax refund by thousands of dollars — without even keeping a log book, but most Aussies don’t take full advantage of it. Some don’t know they’re even eligible, and others try to claim but get it all wrong.
With tax time around the corner, this can be an easy win. So here we’ve covered what this deduction is, who qualifies, how you can take advantage and stay on the right side of the ATO.
How you can claim deductions for your car
When you drive a vehicle for work purposes, there are two ways you can claim deductions. The first way is with the ‘log book’ method, where you track all of your trips for a 12 week period, and from there you can calculate the ‘percentage of use’ for work purposes.
Once you have your work percentage of use, you then track your actual motor vehicle expenses, and can claim a tax deduction for the work related percentage of all of those costs. This method is fairly comprehensive, and can result in some serious tax deductions. But it’s also a bit more involved and takes more time and work.
The other method that results in the deduction of up to $4,400 is the ‘fixed rate’ method. Under this method of deductions, you don’t need to keep a log book in the same way — instead you’re able to claim a fixed deduction of 88 cents for each kilometre travelled for work purposes, up to a maximum of 5,000 kilometres each year.
Under the fixed rate method, you’re essentially bundling up all of your motor vehicle costs and claiming a simple set deduction based on the kilometres you travel for work purposes. Under this method, you don’t need to keep a full log book — but you do need to be able to back up your claim if the ATO asks questions. This means you’ll need evidence of the work related trips you’ve taken, and the dates and purpose so you can back up your claim.
Both methods can be powerful when they’re used the right way, but it’s worth noting you can’t switch back and forth within the year. You need to choose one method and stick to it — and given the size of the deductions on offer, you’ll want to use the right method available for you.
