The time is rapidly approaching when you should be getting your deductible expenditure records in order to ensure you maximize your work related deductions.
In order to claim a deduction you must be able to reply yes to the following three criteria:
- you must have spent the money yourself and you weren’t reimbursed
- the expenditure must directly relate to earning your income
- you must have a record to prove it
One of the most challenging expenses to claim in your 2022 tax return and is therefore the focus of this months’ column is item D1in your tax return – work related car expenses.
Work related car expenses
There are two events that may impact on claiming car expenses in your 2022 tax return:
- Your pattern of car usage for work related purposes may depend upon whether you worked at home or from home possibly resulting in work related kilometers travelled varying significantly from prior years.
- The recent staggering increase in fuel prices which have risen approximately 55% above the normal range applicable in prior years.
If these events together with any other factors/events have impacted on your deductible kilometers travelled and/or the total cost of running your car, you may need to have a rethink if you have previously claimed your deduction under the cents per kilometer method as the alternative, the log book method, may deliver a much higher deduction.
Cents per Kilometer Method
If you elect to use this method:
- You can claim at the rate of 72 cents per kilometer for all of your deductible car expenses without the need to itemize them. Unfortunately at the time of writing, this rate has not been increased to reflect the huge increase in fuel costs.
- You can only claim up to a maximum of 5000 work/business related kilometers per car used in the income year.
- You must have written evidence showing how you worked out your work related kilometers by way of diary records or using the ATO app to track your work related trips.
Log Book Method
If you opt for this method your record keeping requirements are much more onerous but may well be worth the extra effort, particularly if your work related usage is above 5000 kilometers.
- You must have a valid logbook recording the odometer readings for the start and end of the logbook period which MUST show a minimum continuous period of 12 weeks. If you haven’t met this requirement yet, you must commence your logbook record immediately in order to satisfy the 12 weeks requirement.
- You must have evidence of the odometer readings at the start and end of the whole period you owned or leased the car during the income year. If this period is less than 12 weeks prior to the end of the year you can extend the 12 week period into the 2022/23 income year.
- You can obtain a paper logbook from a newsagent or stationery supplier or alternatively keep an electronic record using the ATO myDeductions tool.
- The work related percentage of kilometers is calculated by adding up the number of kilometers of work related trips and expressing that total as a percentage of the total kilometers travelled during the logbook period.
- When calculating your fuel and oil costs you can use actual receipts or credit card records of purchases. Estimating fuel costs on the basis of kilometers travelled multiplied by average fuel price for the period is less reliable now that fuel prices have fluctuated significantly.
- You will need written evidence for all other running costs including registration, insurance, servicing, repairs, tyres and battery replacements, interest on a car loan and electricity charging costs for EV vehicles.
- You will also need to include either depreciation based on the purchase cost or alternatively lease payments if the purchase was financed under a lease arrangement.
Many taxpayers find the log book method rather daunting or haven’t maintained the required records and have therefore had no choice other than to use the cents per kilometer method. So if this is you and you are not able to claim under the logbook method yet again this year then give some thought to the impact of current fuel prices that could otherwise be reflected in a much higher tax refund going forward if you switch over to the log book method.