Tax Return:: 1st Method for Calculating your Car Expense Deductions (CENTS PER KM)

Hello, this is your tax and super specialist, P&C Tax Professionals.

If you are using your own car and you are eligible to claim your work-related car expenses as a deduction for your tax return, there are 2 methods from which you can calculate your motor vehicle deductions.

1. Cents per km

2. Logbook

In this blog post, we will specifically go through the "Cents per km" method.

<What is the Cents per km Method?>

The Cents per km method is one of the methods you can use if you are planning on including car expenses as one of your deductions. To begin with, you would have to work out your total kilometres travelled for work purposes for the given financial year. For the 2020 financial year, you were able to claim 68 cents per 1 kilometre travelled. This has now increased to 72 cents per 1 km for the 2021 financial year.

<How much would I be able to claim?>

You can claim up to 5000km for your work-related car expenses for each vehicle you own (i.e. that is under your own name). For example, if you are working as a tiler and have used 5000km for work during the 2021 financial year, you would be able to claim a total of: 5000km x 72 cents = $3600 which would be tax deductible.

This $3,600 amount is not returned to you as a tax refund but instead it is used to lower your taxable income, helping you reduce the amount of tax you are liable for.

For instance, if you have an income of $40,000 and you have travelled 5000km for work purposes, you would be able to claim your car expenses as a deduction and consequently, your taxable income would now reduce to $36,400. Since you now have a lower taxable income, the amount of tax payable on your taxable income would also reduce.

<Can I also claim other expenses related to my car such as my fuel expenses, car repair and maintenance expenses, etc.>

In short answer, no.

If you are using the Cents per km method to deduct your car expenses and you are claiming 5000km (which is the upper limit for this particular method), you will not be able to claim any additional car expenses whether that may be your fuel costs, car repair and maintenance costs or your car registration and insurance fees. This is because the rate which is used to calculate your deduction (i.e. 72 cents), is inclusive of all your car-related expenses.

<What documents do I need to provide in the event that a tax audit is conducted on my work-related car expense deduction?>

If you think about it, $3,600 for a car expense deduction is a not a small amount at all. Therefore, we cannot ignore the possibility of a tax audit being initiated so you must keep proper supporting documentations at all times.

Generally speaking, some of the documents you should have in hand include a letter from your employer stating that the vehicle is needed for work purposes, a log book (with the dates, number of kilometres travelled and details of the travel), vehicle registration certificate and a photograph of the vehicle itself with the number plate.

You must keep in mind that if you decide to claim your car expenses as a deduction for your tax return, the more you claim, the higher the probability that a tax audit will be performed by the ATO. Therefore, we recommend that you consult with a professional accountant before finalising your tax return.

As always, if you have any further questions or would like to apply for your tax return through P&C Tax, please contact us at any time via our official Facebook Page (P&C Tax Professionals - Australia) or via our email address at pnctax@naver.com.

Thank you and bye for now!