For such a major tax claim, there appears to be a lot of confusion about motor vehicle deductions. For example, it is not widely understood that the end of March is the deadline for purchasing and taking delivery of a car for which you can complete a log book to claim the instant asset write-off for 2024.25.

Information about claiming car expenses is difficult to source and sometimes hard to understand. Hopefully this article will assist with these matters.

 

Ownership

The starting point is ownership. Only the owner of a car can claim motor vehicle expenses.

If you are married and you use a car for work that is owned by your spouse, you can make a motor vehicle claim on your return, but you must declare your spouse. De factos are also recognized as spouses. You do not have to tie the knot to make this declaration, but from my experience of preparing returns, there is a reluctance to state a de facto partner as a spouse.

The main reason appears to be to safeguard against future marital separation issues, which also from my experience, is a fear not backed by legal precedent. Also note that the ability to claim deductions for all items on your return for which receipts are in the name of your partner can only be done if they are listed on your return as your spouse.

You can’t claim running costs for a car you use under a salary sacrifice or novated lease arrangement. In this situation the car is usually leased by your employer from a financing company, and your employer typically pays for the running costs and claims deductions.

Finally, if you use a car owned by a family member, and you can show there is a private arrangement that made you the owner or lessee of the car, even if you are not the registered owner, you may be able to claim car expenses. The same principal applies to directors of companies making vehicle claims for their businesses where they personally own the car.

My advice – to avoid doubt about this matter, pay a transfer of registration fee so that the owner of the vehicle is the one making the claim.

 

Motor vehicle classification

The next step is to work out the classification of your vehicle.

Vehicles that are not cars include motorcycles and scooters. Deductions for such vehicles are allowed as travel expenses if you can prove their work-related use.

Cars are classified into two broad categories:

• commercial vehicles
• non-commercial vehicles

Commercial vehicles are trucks, utilities and heavy vehicles with a carrying capacity of greater than one tonne as well as passenger vehicles with a carrying capacity of 9 or more people, such as minibuses. However, note that the ATO interprets the greater than one tonne/nine passenger rule in concert, meaning a 1.1 tonne SUV that does not have 9 seats will not be classified as a commercial vehicle.

Non-commercial vehicles are effectively passenger cars that do not meet the above definition of being a commercial vehicle and include EVs and station wagons.

 

Logbook rules

The next step is to determine how much you use your car for work and how you use it privately.

Owners of commercial vehicles can do this in the same way that claims are made for other work-related deductions, such as phone and internet expenses, by estimating the private use, if applicable. There is no mandated set of regulations and many owners will claim 100% of their costs if they can prove they only have work use for their vehicles.

Non-commercial vehicle owners are not so lucky and they will need to complete a valid log book to prove the work use for their cars. Note the use of the word valid – this means a log book approved by the ATO that is completed for a continual period of three months of usual travel where every trip is recorded and classified into personal and work use.

Such a log book will produce a percentage of work use that can be relied upon for five years, as long as you do not upgrade or downgrade your car. If your usual travel pattern changes during this period of time, it is recommended that you complete a new log book. Hand-written log books are just as valid as ones produced by apps, if approved by the ATO. Note that you are allowed to slightly increase or decrease the log book result if you believe the result was not reflective of your work use, within a small margin of error.

 

Logbook application for employees and businesses

Once you have worked out your logbook or in the case of commercial vehicle owners, not worked it out, you can apply the result against:

• car purchases
• operating costs

Claiming your car purchase is known as a depreciation claim. For non-commercial vehicle owners, it is important your car is delivered to you at least three months before the end of the financial year to allow time to complete your logbook. Such vehicles are also subject to a limit on which they can be depreciated – the depreciation cost limit (DCL). For 2024/25 the DCL is $69,674, which is also the determinant of the maximum GST credits claim for new cars, being $6,334.

Depreciation claims differ between employees and businesses. Employees, who are not allowed to use pooling rules, can only claim depreciation according to the number of days in a financial year that they have possession of the vehicle at the ATO rate of 25%. Buying a car on 30 June will not help their tax position greatly whether or not they are claiming for a commercial vehicle not subject to the DCL.

Businesses can use either the pooling rules or the instant asset write-off, disregarding the number of days of ownership, to increase their tax claims. For 2024/25 the instant asset write-off allows the first $20,000 (ex-GST) of a car purchase to be claimed as a tax deduction.

Claiming operating costs is the same for employees and businesses. Fuel and oil (or electricity costs for EVs), insurance, registration, repairs and maintenance and interest expenses on chattel mortgages are all claimed either with a log book for non-commercial vehicle owners or by determining work-related use for those owning commercial vehicles

 

Cents per km method

If you own a non-commercial vehicle and you do not have a valid log book, you may use the cents per km method to claim your car expenses.

The maximum claim is 5,000km at the statutory rate for 2024/25 of $0.88 cents per km.

If you and another joint owner use the car for separate income-producing purposes, you can each claim up to 5,000 work-related kilometres.

To prove your claim, you will need to keep a diary of your car travel or simply use the myDeductions tool in the ATO app.

* not quite everything…

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Artwork image:

Brendan Kelly
Sol y Sombre for our Son (2024)
Synthetic polymer paint on board
120cm by 120cm

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