Tax Return:: 2nd Method for Calculating your Car Expense Deductions (Logbook)

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

In our last blog post we discussed about the "cents per km" method which is one of the two methods you could use to claim for your work-related car expenses. Today, we are going to explain to you the next method commonly referred to as the "logbook" method.

First of all, as mentioned previously in the last blog post, you would only be eligible to claim your car expenses as tax deductions if you are using your own vehicle that is under your own name. You must also keep in mind that if you are also using the vehicle privately, you must only claim the work-related percentage of the total motor vehicle expenses you incur during the financial year.

<What is the Logbook method?>

The logbook car expense deduction method is a method that allows you to claim your work-related vehicle expenses as deductions when applying for your tax return.

However, the purchase price of the vehicle or the principal amount of the car loan you used to purchase your vehicle cannot be included in the calculation of your car expense deduction. On the other hand, the depreciation of the motor vehicle is tax deductible.

<How to calculate using the Logbook method?>

Taking the 2021 financial year as an example, let's pretend that at the beginning of this financial year (1 July 2020 - 30 June 2021), you purchased a $50,000 car for the purposes of using it for your work (50% work-related) and total expenses incurred equates to $5,000.

Then the calculation of the car expense deduction is as follows:

1. 10-year depreciation on your newly purchased car = $50,000/10 years = $5,000

2. Total annual car expenses including fuel, car insurance, car registration, etc. = $5,000

3. Work-related percentage use of your car = 50%

($5,000 + $5,000) x 0.5 = $5,000

In this case, you can claim a total of $5,000 as your car expense deduction.

<Records and Supporting Documentations you need for the Logbook Method>

If you have decided to use the logbook method, unfortunately, there are quite a bit of record keeping to do.

First of all, you must keep all the receipts for your car expenses as well as the depreciation report for the car you have purchased.

On top of that, if this is your first year using the logbook method, you would also need to write up and maintain a logbook for at least 12 continuous weeks during the financial year and the percentage used for work purposes should be separated from the percentage used for personal/private travel. This logbook would then remain valid for 5 years and after this period, you would have to write up a new one.

For example, if you have used your car to travel a total of 10,000km during the 12 weeks from which 3,000km is used for work-related travel, the business-use percentage would be 30% (3,000km/10,000km).

<What about the accident costs that are incurred during your work-related travel?>

If you get into an accident while using your vehicle for work, you can use the logbook method to claim 100% of the costs that were incurred as a result of the accident. We recommend that you consult with a professional accountant for more details.

If you decide to use the logbook method to claim for your car expenses, it may become time consuming and complicated if you start organising your expenses when tax returns are due. Therefore, we suggest organising your motor vehicle expenses in an Excel file with the dates, details and relevant figures well in advance which can then be used to calculate your work-related percentage use as well.

Since the claim amount is relatively large for a car expense deduction, there is a higher chance that a tax audit may be performed by the ATO which is why we highly suggested that you consult with your professional accountant prior to lodging your tax return.

Once again, I hope today's blog post has given you some useful insights in preparing for your tax return and any further questions or enquiries can be directed to our Official Facebook Page (P&C Tax Professionals - Australia) or to our email address at: pnctax@naver.com.

Thank you and bye for now!