Quick Answer: Given the rising fuel costs, the rate for the 2023-24 year has been increased to 85 cents per kilometre. This adjustment aims to compensate for increased operational costs faced by professionals.
The cents per kilometre method is often misinterpreted when it comes to calculating car expenses. This article provides a thorough guide on everything you need to know about using the cents per km method effectively.
If you’re a business owner, a freelance professional, or an employee aiming to enhance your tax savings, this piece will arm you with the essential knowledge and confidence to utilize this often-overlooked method. By doing so, you can maximize your deductions while adhering to tax laws.
How Do Car Expense Claims Work?
In Australia, car expenses can be claimed through two main methods: the cents per kilometre method and the logbook method.
The cents per kilometre method permits taxpayers to claim a set rate for each business kilometre driven, up to a limit of 5000 kilometres per year, as prescribed by the ATO. This approach simplifies the process by removing the need for detailed logs, ideal for those who prefer a straightforward method.
Conversely, the logbook method involves maintaining detailed records for a minimum of 12 consecutive weeks, which can then be used to calculate the percentage of vehicle use for business purposes for up to five years. This method, known as the actual costs method, allows for claims based on actual expenses proportional to business use.
Both methods have their benefits and considerations, and this article focuses on the details of the cents per kilometre method.
What Can You Claim?
When it comes to work-related travel, every kilometre can be claimed for substantial benefits.
You can claim up to 5000 business kilometres per year. For the fiscal years 2022-23, the rate was set at 78 cents per kilometre. Given the rising fuel costs, the rate for the 2023-24 year has been increased to 85 cents per kilometre. This adjustment aims to compensate for increased operational costs faced by professionals.
So, gear up, keep track of your business travel, and leverage these deductions to optimize your savings.
Conditions for Claiming Work-Related Car Expenses
Claiming car expenses requires adherence to specific criteria. If you’re reimbursed by your employer for travel expenses or have access to a company car, you typically cannot claim additional expenses. Similarly, expenses related to a novated lease or employer reimbursements are not eligible for claims, as they are considered non-taxable income.
Proof is Key
Maintaining a record of your business-related kilometres is crucial. Whether through a diary, an app, or a spreadsheet, documentation is vital. The ATO may request these records as evidence for your claims, so reliable documentation is essential for a successful claim process.
Which Kilometres Count?
It’s essential to understand that only business kilometres qualify for tax deductions. Daily commutes to your regular workplace are not eligible; however, if you travel between different jobs in a day or from a home-based office to a job site, these can be claimed.
What About Additional Claims?
It’s a misconception that the cents per kilometre method allows for additional claims for specific car expenses. This method includes all car-related expenses, so there’s no room to claim beyond the set rate. The logbook method might be preferable for those with substantial car expenses beyond what the cents per km method covers.
Next Steps
This guide has outlined eligibility, proof requirements, and qualifying travel for the cents per kilometre method. While convenient, it’s important to understand its scope and limitations. For those with significant car expenses, the logbook method might be more appropriate. Our team at Empower Business Coaching is ready to help determine the best approach for your situation.
This article is intended for informational purposes only and does not constitute legal, tax, or financial advice. Each individual’s or entity’s circumstances are different, and laws and regulations are continually changing. We recommend consulting with a qualified tax professional to understand how the information provided relates to your unique situation. No responsibility will be taken by the provider for any reliance on the information contained within this article.