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ATO scrutinising car deductions this tax time

The ATO has announced that it will be closely examining claims for work-related car expenses this tax time as part of a broader focus on work related expenses.

Assistant Commissioner Kath Anderson said:

“We are particularly concerned about taxpayers claiming for things they are not entitled to, like private trips, trips they didn’t make, and car expenses that their employer paid for or reimbursed.”

This is no doubt because over 3.75 million people made a work-related car expense claim in 2016/17 (totalling around $8.8 billion), and, each year, around 870,000 people claim the maximum amount under the cents-per-kilometre method.

Ms Anderson said that the ATO’s ability to identify claims that are unusual has improved due to enhancements in technology and data analytics: “Our models are especially useful in identifying people claiming things like home to work travel or trips not required as part of your job . . . simply travelling from home to work is not enough to qualify, no matter how far you live from your workplace.”

Ms Anderson said there are three golden rules for taxpayers to remember to get it right.

“One – you have to have spent the money yourself and can’t have been reimbursed, two – the claim must be directly related to earning your income, and three – you need a record to prove it.”

Case studies

False logbook

A traffic supervisor claimed over $11,000 for work related car expenses, and provided a logbook to substantiate his claim. 

However, upon investigation the ATO discovered that the logbook wasn’t printed until the following year – the taxpayer admitted the logbook was fraudulent and it was ruled invalid.

Even though the logbook was invalid, the taxpayer was able to provide other evidence to show that he had traveled at least 5,000 kilometres for work-related purposes, so the ATO used the cents per kilometre method to calculate the taxpayer’s deduction (but his claim was reduced from over $11,000 to under $4,000).

Claiming for home to work travel

A Laboratory Technician claimed $3,300 for work-related car expenses, using the cents per kilometre method for 5,000 kilometres. 

However, he advised that his employer did not require him to use his car for work; this claim was based on him needing to get to work.

The ATO advised the taxpayer that home to work travel is a private expense and is not an allowable deduction – his claim was reduced to nil and the ATO applied a penalty for failure to take reasonable care.

Car deductions: What do you need to know?

When you can claim

You can claim a deduction for work-related car expenses if you use your own car in the course of performing your job as an employee, for example, to:

  • carry bulky tools or equipment (such as an extension ladder or cello) which your employer requires you to use for work and cannot leave at work
  • attend conferences or meetings
  • deliver items or collect supplies
  • travel between two separate places of employment, provided one of the places is not your home (for example, when you have a second job)
  • travel from your normal workplace to an alternative workplace and back to your normal workplace or directly home
  • travel from your home to an alternative workplace and then to your normal workplace or directly home (for example, if you travel to a client’s premises)
  • perform itinerant work.

If you receive an allowance from your employer for car expenses, it is assessable income and the allowance must be included on your tax return. The amount of the allowance will usually be shown on your payment summary.

You have 2 options for claiming car deductions:

Cents per kilometre method

  • Your claim is based on 66 cents per kilometre for 2017–18 income year.
  • You can claim a maximum of 5,000 business kilometres per car.
  • You don’t need written evidence but you need to be able to show how you worked out your business kilometres (for example, by producing diary records of work-related trips).

Where you and another joint owner use the car for separate income-producing purposes, you can each claim up to a maximum of 5,000 kilometres.

Logbook method

  • Your claim is based on the business-use percentage of the expenses for the car.
  • Expenses include running costs and decline in value but not capital costs, such as the purchase price of your car, the principal on any money borrowed to buy it and any improvement costs.
  • To work out your business-use percentage, you need a logbook and the odometer readings for the logbook period. The logbook period is a minimum continuous period of 12 weeks and can be used for 5 years.
  • You can claim fuel and oil costs based on either your actual receipts or you can estimate the expenses based on odometer records that show readings from the start and the end of the period you had the car during the year.
  • You need written evidence for all other expenses for the car.

When you can’t claim

Most people can’t claim the cost of travel between home and work because this travel is private.

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