Tax Tip: Keep A Motor Vehicle Logbook

There used to be four ways to claim vehicles, but now there’s only two ways to claim vehicles as a business:

The first way is the cents per kilometre method, where the ATO gives you a specified amount each year, and based on how many kilometres you do for work purposes, you can actually claim the kilometre number times the cents per kilometre, which equals your deduction. Now, that’s capped at 5,000 kilometres which is just over $3,500 in deductions. So that’s option 1. 

And if we have a look at option 2, which is claiming the actual expenses of running, maintaining and purchasing that vehicle and you times that by your business use, then that can give you how much tax deduction you can have. 

There can be a massive difference between those two methods to your outcome from a tax perspective. So just remember, that first method is just over $3,500 in tax deduction. Now, let’s use an example where you’ve purchased a $50,000 car, you use for 80% business use, and it takes $10,000 a year in fuel, servicing, rego, insurance, interest on the loan, that sort of thing – so $10,000. So just the running cost of that vehicle, times by the business use of 80% equals $8,000 in tax deductions. The other benefit of that is you can actually claim the GST up to the business use percentage as well, which is money straight off your BAS bill, which is pretty cool, when you can’t do that with the cents per kilometre method. 

So you’ve got an $8,000 deduction under the log book method versus a $3500 maximum under the cents per kilometre. Now, the kicker here is also depreciation – depreciation will make those numbers even more further apart, as well. So let’s say you bought a $50,000 car. If you purchase that in the COVID concessional period where you can write off the whole cost of an asset up to its business use, then that $50,000 car times by 80% is $40,000 in depreciation. That’s a huge number when you compare it to a maximum of $3500 in claiming under the cents per kilometre. So that $40k plus your $8,000 in deductible running cost is 48 grand versus your 3.5 grand when you add that all together. Plus, you can also claim the GST on the purchase cost of the car up to 80%, of course, if you use a log book percentage.

I’ve very rarely seen an instance where the log book method of claiming a vehicle does not outweigh the benefits of using cents per kilometre. So I’d encourage you if you don’t already, keep a log book. It has to go for 12 weeks and it has to start in the financial year that you want to start using that percentage in. So you’ve got until technically 30th of June to start that log book. Keep it for 12 weeks, and work out what kilometres you drive for business versus personal, workout what percentage overall that is, and keep them on file. If nothing substantial changes in the pattern of driving, you can keep that log book for up to five years and refer back to it before you have to keep another one. 

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