Owning or leasing a vehicle for business purposes can offer significant tax benefits, but it’s crucial to keep accurate records to maximize your deductions. This guide will help you understand the different methods available for claiming vehicle expenses, based on your business structure and the type of vehicle.

Claimable Expenses

Common claimable expenses include:

  • Fuel and oil
  • Repairs and servicing
  • Insurance premiums
  • Registration
  • Interest on loans for vehicle purchases
  • Lease payments
  • Depreciation

Business Structure and Claim Methods

Trusts and Companies

For businesses operating as a trust or company, the “actual costs” method is mandatory for all vehicles. This method allows you to claim the actual expenses incurred, provided you have receipts to support your claims. It’s important to note that only business-related use can be claimed, so if the vehicle is also used for personal purposes, you must determine the percentage of business use. A diary to record business and private use can be helpful in justifying your claims. Remember, travel between home and business is considered private use unless your business operates from home and the travel is for business purposes.

Individuals (Sole Traders and Partnerships)

For sole traders and partnerships with individual partners, the method you choose depends on whether the vehicle is classified as a “car” or another type. A “car” is defined as a vehicle designed to carry fewer than nine passengers and a load less than one tonne.

  • Non-Car Vehicles: You must use the “actual costs” method, as described above.
  • Cars: You have a choice between two methods:
    1. Cents-Per-Kilometre Method: This method allows you to claim a fixed rate per kilometre traveled for business use, up to a maximum of 5,000 kilometres per year. For the 2024–2025 tax year, the rate is 88 cents per business kilometre. A “reasonable estimate” of business kilometres is required, and you must be able to explain how you calculated this total.
    2. Logbook Method: This method is not restricted to 5,000 kilometres, but it requires more detailed records. You need to maintain a logbook for a continuous 12-week period in the first year of using this method. The logbook will help determine the percentage of business use, which can then be applied to your car expenses for that year and the next four years.

Navigating the Complexities

It’s advisable to consult a tax professional to ensure you’re using the correct method and maximizing your deductions. Additional considerations include Fringe Benefits Tax (FBT) on the non-business portion of vehicle use, and limits on the value used for calculating depreciation. The logbook method also requires you to consider changes in the car’s usage patterns.

For expert advice on maximizing your business’s vehicle deductions and keeping accurate records, please contact our office.

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