Our Medical Services Team explain deductions available when claiming tax deductions for motor vehicles.
When claiming a motor vehicle for taxes there are strict rules around the deduction method and proof required to claim a deduction. There are also strict rules on the type of trips that are deductible or not deductible, for example, from driving to home to work is rarely deductible. However, a deduction is available for trips between places of work to see patients or for training or conferences.
As the rules are quite complicated, we always recommend speaking with a tax advisor to ensure that the deductible trips are identified based on your personal circumstances.
Once you have identified your deductible trips, you can then choose which deduction method you are going to use to create your motor vehicle travel. There are two methods to claim for the first instance per kilometre, which allows a deduction per business trip up to a limit of 5000 kilometres. In order to claim you made diary evidence of your business trips during the financial year. Your kilometres are then multiply by the commissioner’s rate to claim your deduction. The rate is currently 72 cents per kilometre. This method is much easier to keep records for but is not suitable if you drive a lot more than 5000 business kilometres during the financial year.
The other method you can choose is a logbook. Under this method, you need to keep a whole book for a continuous 12 week period and note all trips that would travel in your car both business and private. At the end of the 12 weeks, you then calculate the business usage of the car. That business usage is then applied to the expenses for your car for the financial year. This includes fuel, registration, insurance, repairs, late interest and depreciation.
Please keep in mind that if you purchase a luxury car, the depreciation is limited to the luxury car cost of $60,733. Conversely, when you sell a luxury car, there can be adverse tax consequences as the sale price and the GST on the sale are not capped to the luxury car limits.
Regardless of the method that you used to claim a deduction, if you registered for GST, there are avenues to claim a portion of the GST on the actual purchase of the car. GST is also subject to the depreciation limits and business use of the car. The current instant asset write off rules, which I previously spoke about, also apply to cars and are still subject to the depreciation limits.
Whichever method used to claim a deduction for cars, please consult your tax advisor as this is an area that ATO assumes is generally being applied incorrectly if they are to audit your tax return.
For more information visit our Business Advisory webpage or contact your Pilot Advisor on 07 3023 1300.