CPA and tax preparer Jenny Theodore said many people mistakenly claim auto-related expense deductions without keeping any records. (Credit: Provided/Getty)
Australians are being warned about a common tax credit that’s on the Australian Taxation Office’s (ATO) hit list this year. Millions of Australians who use their cars for work could be able to claim up to $4,250 even if they don’t keep a logbook, but they’ll still need to back up the credit.
Jenny Theodore, founder of Air Consulting, told Yahoo Finance that many people are “taking 5,000km of work-related car expenses for granted” on their tax returns this year without submitting any records. The chartered accountant and registered tax accountant said this could get them in trouble.
“Fraudulent motoring expense deductions are one of the ATO’s focus areas so it’s surprising to see these results this year,” Mr Theodore said.
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“People seem to think they can claim without any corroborating or detailed records, but that’s not the case. If you do claim, you need records to prove you travelled 5,000km.”
If you use your car for work, you can calculate your deduction for work-related car expenses using either the “cents per kilometre method” or the “logbook method”.
The cents per kilometre method allows you to claim up to 5,000 work-related kilometres. According to the ATO, this includes all vehicle expenses such as diminished value, registration, insurance, maintenance, repairs and fuel costs.
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For 2023-24, you can claim a deduction of 85 cents per kilometre this way, or up to $4,250 in total.
Mr Theodore said the logbook system was a better choice for people who travel a lot and would “definitely” allow for a higher deduction, but the records required were more cumbersome.
“You’re going to have to keep a 12-week travel log for all non-work-related travel, so it’s quite a hassle for people, so no one does it,” she said.
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What auto-related expenses can I claim?
You can only claim expenses for work-related travel, including travel between work locations and travel to perform job functions, but not travel between your home and work.
Theodore said it was a common misconception that travel between work and home could be claimed as an expense.
“Traveling to and from work is considered personal or private in nature and is not tax deductible,” she told Yahoo Finance.
“This is only tax deductible if you are travelling between jobs or if you are in the office and going out for client meetings etc.”
More than three million taxpayers claimed deductions for motor-related expenses in 2023, according to the ATO.
What records do you need?
Cents per kilometre system
You are not required to keep a logbook, but you should keep records showing how you have calculated your work-related mileage.
For example, the ATO says you can record work-related travel in your diary or use the myDeductions tool in the ATO app.
“The ATO would expect some kind of record, whether it’s an Excel spreadsheet or an extract from a calendar or diary entry, that shows you actually did make those trips during the year and that it helped you reach 5,000 kilometres or whatever,” Mr Theodore said.
“The records required are certainly not that onerous, but that doesn’t mean you’ll be able to provide them anyway. If you are investigated or audited by the ATO, they’ll look at how you arrived at this claim.”
Logbook method
The logbook must cover at least 12 consecutive weeks of travel. It must include the destinations and purpose of all trips, the odometer readings at the start and end of each trip, and the total kilometres travelled during the period.
You must also include odometer readings at the beginning and end of the logbook period, and readings at the beginning and end of the income year for which the logbook is used. Logbooks are valid for a maximum of five years.
Theodore said it’s always worth keeping more detailed records than you think you’ll need, just in case.
“The more records you have, the bigger the deduction you can get, so it’s worth it in the long run,” she said.
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