Max Newnham -Aug 31, 2009
The tax treatment of motor vehicles is one of the most complex that businesses deal with on a regular basis. Like most things in business there are several options to choose from when claiming car costs, and the one that produces the best result requires the most work.
Q. You mentioned last week several methods for claiming car expenses. Can you explain how they work?
A. The four main methods that can be used to claim costs for traditional passenger vehicles are the Kilometre method, the 12 per cent of cost method, the one third of running costs method, and the log book method. The first three methods must be used if a log book has not been kept for a minimum of 12 continuous weeks.
The log book is kept to establish what percentage of the total kilometres travelled by the car relates to business use. Travel from home to a place of business is classed as private travel unless bulky tools of trade or other items must be transported. The best way to keep a log book is to record all travel for the 12 week period, both business and private, so you can ensure no business travel is missed.
Once the business use has been established a claim can be made for the portion of the running costs associated with that car. Running costs include fuel, repairs, registration, insurance, lease costs, interest on finance and depreciation. For example if a log supported business travel of 80 per cent, and the total running costs for the vehicle were $10,000, a claim could be made for $8000.
Where a log book is not kept, but you can show that you drive more than 5000 kilometres for business reasons a year, you can claim either one third of the total running
costs of the car, claim 12 per cent a year of the purchase cost of the car, or multiply the 5000 kilometres by a cents per kilometre rate depending on the engine size of your car. If you do less than 5000 business kilometres you can only use the cents per kilometre method.
Under the one third method, using the same total running costs as before, a claim could be made for $3333. Where the cost method is used, and the car cost $40,000, an annual tax deduction could be claimed of $4800. The cents per kilometre rates for the 2008-2009 tax year are as follows:
Engine Capacity/Cents per Kilometre
1600cc or less - 63
1601cc to 2600cc- 74
2601cc or greater- 75
Q. I read your article on claiming car costs on tax. Does the same apply to motorcycles? I am considering purchasing a couple of motorcycles for our building business to reduce running costs and to get around to sites and client meetings more quickly given the huge amount of traffic that is currently on the roads in Melbourne. We would still have our work ute but we increasingly rely on our suppliers to deliver goods. We generally need to get to sites and meetings with only a few items and we are sick of the time lost sitting in traffic.
A. To be able to claim the cost of a motorcycle you would need to keep a log book for 12 weeks to be able to prove what its business use is. Once you have established this you could claim that percentage of the total running costs of the motorcycle including lease payments, costs, fuel, repairs, registration, and insurance.
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Tax for small business, a survival guide, by Max Newnham is available in bookstores.