What motor vehicle expenses can I claim for a tax deduction?

Motor vehicle expenses incurred in the course of deriving assessable income or in carrying on business are allowable deductions. Such expenses include petrol, oil, repairs, servicing, new tyres, lease charges, interest on a car loan, car washes and polishes. The cost of a driver's licence is not an allowable deduction, even if the holding of the licence is a condition of employment, but any premium on top of the cost of a standard licence would be allowable. Bridge or road tolls, car registration, third party insurance, insurance excess, comprehensive insurance and annual fees for membership in motorists' associations also form part of deductible motor vehicle expenses (but parking fines are not deductible).

If the car is jointly owned or jointly leased, expenses must be calculated according to the % of ownership of the vehicle.

Taxpayers who choose to use their own private car for work purposes, even though they could have free use of a company vehicle, are still entitled to claim a deduction for the costs of business travel in the car.

Car parking expenses

Generally, a deduction is allowable for parking fees incurred while travelling in circumstances where the travel expenses are deductible. However, deductions are not allowable for parking fees incurred by an employee where the car is used to commute from home to work and is parked at or near the employee's main workplace for more than four hours during the day between the hours of 7 am and 7 pm. A deduction for car parking expenses is not denied if the employee is the driver of, or a passenger in, the car and is entitled under state or territory law to use a disabled person's parking space and a valid disabled person's car parking permit is displayed on the car.

Leasing charges

No deduction is allowed to an employee for lease payments made by an employer to a finance company in a partial novation under a motor vehicle lease novation arrangement. In a full novation, the employer is entitled to a deduction for lease expenses where the vehicle is used in the business or provided as part of a salary package.

Entitlement to private use

If an employer provides a car for the exclusive use of an employee or the employee's relatives in circumstances where the employee or relatives are entitled to use the car for private purposes, expenses incurred in connection with the car by the employee are not deductible.

The various methods that can be used are shown below. For guidance as to which method will provide the greatest deduction in your particular circumstance, contact our office.

The options available where a car travels more than 5,000 business kilometres are also available where a taxpayer first starts or ceases to use the car part-way through the year and the business usage would have exceeded 5,000 km if the car had been used for the whole year.

A different method of substantiation can be used for each car held by the taxpayer for income-producing purposes. The taxpayer can also switch from one method of deduction to another year by year.

Often a taxpayer will not know in advance which method will provide the greatest deduction. If a taxpayer's income-producing mileage is high by comparison with the private mileage, the taxpayer would probably be better off using the log book method. On the other hand, if the taxpayer travels more than 5,000 business kilometres during the year, but the business mileage is low when compared with the private mileage, the taxpayer may be better off, at least in that year, using the 12% of original value or one-third of actual expenses method. In considering the appropriateness of the cents per kilometre method, particularly where more than 5,000 business kilometres are travelled, the size of the deduction must be balanced against the reduced record-keeping requirements.

Substantiation of Overseas and Domestic Travel

Special substantiation rules apply to expenses in relation to overseas and domestic travel. The rules apply to expenses incurred by the taxpayer on his/her own travel, whether as a recipient of certain PAYG withholding payments (ie payments to employees, company directors and office holders, return to work payments, retirement payments, employment termination payments and annuities, and benefit and compensation payments: an employer, self-employed person, or a partnership that includes at least one individual. They do not apply to expenses incurred by a company or a trust.

The effect of the substantiation rules is that domestic and overseas travel expenses are not deductible unless the following two conditions are satisfied:

1. Written evidence must be obtained by the taxpayer in respect of expenses relating to travel, regardless of length of absence from home. In the case of a business travel expense (ie a travel expense incurred in producing income other than salary or wages), written evidence need only be kept if the travel involved at least one night away from home.
2. Travel records (ie a travel diary or similar document) must be kept by a taxpayer where the taxpayer was away from the ordinary place of residence for six or more consecutive nights. The records must contain particulars of each business activity undertaken during the relevant travel. Entries must be made before the activity ends or as soon as possible afterwards, setting out: (a) the nature of the activity; (b) the day and approximate time when it began; (c) how long it lasted; and (d) where the activity took place.

These rules extend to car expenses incurred in respect of overseas travel and taxi expenses, but not to other motor vehicle expenses — car expenses are subject to their own substantiation rules. Taxpayers are exempt from the substantiation rules in any year in which their claim for work expenses, including travel expenses, does not exceed $300.

Owner-drivers of long distance trucks who are required to sleep away from home are required to substantiate accommodation, meal and other travel expenses (if the driver does not sleep away from home, those expenses are not considered to be deductible as travel expenses). The Commissioner considers that it is reasonable to obtain receipts for meal expenses in roadhouses or other similar food outlets (food and drink purchases from vending machines or roadside caravans may be substantiated by an entry in a diary or other record). A diary must be kept for absences of six or more nights in a row.

Deduction for Self-Education Expenses

 In general terms, self-education expenses (e.g. tuition fees, textbooks, and travel and living expenses incurred in attending conferences, seminars or educational institutions) are deductible where the expenses have the necessary connection with the production of the taxpayer’s assessable income. However, a deduction is not available in respect of the first $250 of certain kinds of self-education expenses.

 The following principles govern deductibility of self-education expenses:

1. The cost of improving knowledge or skills is not an outgoing of capital.
2. Expenses incurred in keeping up to date or to better enable the taxpayer to discharge existing duties or to earn present income may be deductible.
3. Where (2) does not apply and a new or further qualification is sought, there must be at least a high degree of probability that it will lead to an increase of earnings if the cost is to be deductible. However, the qualification need not necessarily have to give rise to an increase in salary. It will not be sufficient simply to establish that the employer has encouraged the employee to undertake the self-education. If the taxpayer is not currently occupied or employed in an area that makes the study necessary or desirable, the cost is not deductible.
4. No deduction is allowable for self-education expenses where the study is to enable a taxpayer to get employment, to obtain new employment or to open up a new income-earning activity (even in the taxpayer’s present employment).

 If the requirements for deductibility are met, the following expenses qualify as self-education expenses:

• Tuition or course fees (including student union fees) related to attending an educational institution or work-related conferences or seminars.
• The cost of textbooks, professional and trade journals and photocopying
• Fares incurred on overseas study tours or in attending work-related conferences or seminars or an educational institution. Accommodation and meal expenses are allowable where the taxpayer is required to be away from home overnight, but not where the taxpayer establishes a new home base.
• Motor vehicle expenses incurred in travelling between: (a) home and an educational institution (including a library for research) and back again; and (b) the place of work and the educational institution and back again. If a taxpayer travels from home to an educational institution and then on to his/her place of work and returns home by the same route, only the costs of the first leg of each journey are deductible
• Interest on moneys borrowed to pay for the expenses listed above.

 Depreciation may be claimed on items used in connection with self-education (such as computers, filing cabinets and desks). Interest on moneys borrowed to purchase such items is deductible under the general deduction provision.