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Claiming vehicle expenses: avoid these 7 common tax return mistakes

Jul 17, 2020 | Accounting, Business, Taxation

Car-related expenses are among the most commonly claimed tax deductions in Australia, with car expenses accounting for some 40 per cent of all work-related deductions. If you’re claiming vehicle expenses this tax season, please keep reading!

If you use your car for work, you’re entitled to claim back the related car costs, but with the ATO cracking down on car-related deductions it’s important to get clear on which deductions are allowed. And with more and more people renting their car out to earn a side income since it wasn’t used for the last three months, it’s important to also be clear about what you can claim.

From experience, many people trip up over car-related expenses – but surprisingly, some car owners may be claiming too little rather than claiming too much. Many car owners don’t know about all of the deductions they could be claiming.

You’re entitled to claim your car-related expenses for using your own car to perform work duties such as:

  1. Carrying tools or other equipment needed for your job
  2. Travelling from home to an alternative workplace (like a client’s office) then back to your main workplace or home
  3. Travelling to meetings, conferences or events required by your employer
  4. Travelling between two separate workplaces where you are employed and delivering or picking up items, as required by your employer.

Separately from your work-related car use,  if you rent your car out you can claim your entire membership fee, plus some or all of your biggest expenses like registration, insurance, servicing, cleaning, depreciation and fuel.

7 common mistakes people make when claiming car expenses

  1. Claiming your normal travel to and from work This isn’t claimable, even if you do a small work-related task like picking up the mail. Even if there’s no public transport available when you head home after working overtime, it’s not claimable either.
  2. Claiming for carrying equipment where it is not required by your employer: If you can’t prove this is required by your employer or there’s no safe place to store your equipment at work, then it’s not claimable.
  3. Claiming expenses associated with a company car or car purchased on a novated lease: Be careful not to ‘double dip’ on car expenses – you can’t claim expenses that have already been paid for by your employer, including salary sacrificing arrangements.
  4. Claiming expenses without records to back them up: One of the most common mistakes car owners make, is claiming car costs using the ATO’s cents-per-kilometre method, without the records to back them up. You can claim up to 5000km a year at 68c per kilometre in 2020 tax year, but this is not a ‘free pass’ – you must be able to provide documentation. If you rent your car out, the car-share platform should be able to provide you with a summary of all of the kilometres driven during bookings, to make it easy to claim.
  5. Forgetting to claim depreciation: Many car owners forget to include depreciation when they’re adding up their annual car expenses at tax time. If you use your car for work or rent it out, ask your accountant about how you should calculate depreciation as it may add thousands to your allowable deductions.
  6. Not claiming all allowable expenses, if you rent your car out: Any money you earn from renting out your car is considered taxable income and must be declared on your tax return, but you can also claim expenses for the portion of your car costs that relate to the rental activity, or a simple 68 cents for every kilometre your car is driven by borrowers.
  7. Getting the rules for cars and vans mixed up: You’d be forgiven for not knowing that there’s a difference, but the ATO has different rules for claiming deductions if you rent out a panel van, ute or other small cargo vehicle than if you’re renting out a car.

Navigating and managing tax can often be daunting and time consuming. Our Team of tax specialists will ensure you stay on top of obligations, up to date with the latest developments and tailor strategies to suit your situation.

Whether you are an individual or in business, we have the experience and advice you need.

Contact us online or call our team on 07 4944 0449 today!

Claiming vehicle expenses tips sourced here and from the Team at DGL.