Car expense claims: 8 easy examples for your business
As a small business owner in Australia, you can claim a number of vehicle expenses related to the running of your business. This includes a deduction on your car trips, fuel, repairs, insurance and even depreciation if you own the vehicle outright. However, specific requirements must be met for these expenses to be legitimate. Let's look at what can and cannot be claimed for car expenses with eight easy examples.
Driving is necessary for many small business owners as it provides a convenient means of getting to client meetings, visiting suppliers, and delivering goods and services. If you are a courier, real estate agent, or tradie, you just wouldn't be able to run your business without a car.
Having a car allows the flexibility to work from multiple locations and respond quickly to urgent business needs. By offering a sense of independence and control, many entrepreneurs rely on a car to manage their time and schedule more effectively.
The good news is that if you use your own car or a company-owned car to run your business, you can claim the costs of running it. This includes petrol, registration fees, servicing, repairs, insurance premiums and depreciation (for vehicles owned by the business). You can also claim a deduction on car mileage and tolls paid while travelling on behalf of your business. Let's run through 8 easy examples to ensure you are getting the most out of the tax deductions you can claim.
1. Claiming car mileage
You have two options when claiming expenses if you're using your own vehicle for work-related travel:
- If you travel under 5,000 km a year: To claim a per km allowance, you'll need to travel under 5,000 for the year. If you do, it's straightforward, keep track of the distance travelled for each trip during the year and then multiply $0.78 per km.
- If you travel over 5,000 km a year: If your total km exceeds 5,000 km for the year, you'll need to use the log book method and log your trips over a 12-week period.
Car mileage example:
If you undertook 35 work trips in your car for the year, and it totalled 3,200 km, you could claim:
3,200 x $0.78 = $2,496
2. Claims for renting a car
You can also claim certain car expenses even if you don't own the vehicle yourself; this includes hiring cars or renting cars from companies such as Hertz or Sixt. These claims are based on how much the vehicle was used for business purposes compared to personal use over the financial year. For example, if 30% of the kilometres driven were used for work purposes, then 30% of all associated costs can be claimed as an expense against tax.
Car rental example:
If you hired a car for 2 months, for a total of $4,000, and used it 50% of the time for work, you could claim:
$4,000 x 50% = $2,000
3. Claims for buying and selling cars
Businesses can claim deductions for the cost of a vehicle, including financing costs, depreciation, and the GST component of the purchase price, if they are registered for GST. When selling a business vehicle, any profit made from the sale is considered a capital gain and is subject to capital gains tax.
Car sale example:
If you purchase a vehicle for $24,000 and GST was $2,181.82, and you are a GST-registered business, you can claim:
$2,181.82 can be deducted from any GST you earned for the financial year.
4. Claims for car repairs and maintenance
Expenses for car repairs and maintenance are eligible for tax claims. This includes services, oil changes, tire replacements, and other routine maintenance expenses. In addition, businesses can also claim the cost of more significant repairs, such as engine overhauls or transmission replacements, if they are directly related to the vehicle's use for business purposes.
Car repair example:
If you had to get your vehicle serviced, and it cost $1,000, and you drove the vehicle 30% of the time for work, you could claim:
$1,000 x 30% = $300
5. Claims for the cost of registration and insurance
The cost of registering a vehicle, including renewal fees and penalties, is tax-deductible as a business expense. Similarly, the cost of insuring a business vehicle, including comprehensive, third-party property damage and liability insurance, is also tax-deductible. The ATO mandates that businesses only claim deductions for insurance premiums directly related to the vehicle's use for business purposes.
Car insurance example:
If you purchase car insurance, and it costs you $2,200, and you drove the vehicle 80% of the time for work, you could claim:
$2,200 x 80% = $1,760
6. Claims for the cost of fuel
Small businesses that operate heavy vehicles and machinery such as cranes or trucks can claim a fuel tax credit for the fuel tax (excise or customs duty) included in the price of fuel used in vehicles for business purposes.
There are several methods for claiming fuel tax credits. For the purposes of this post, we'll focus on the simplified method.
Car fuel example:
If you drove 4,000 km on public roads and purchased 500 litres of diesel, you could claim:
500L x $0.165 (public road rate) = $82.50
7. Claims the cost of depreciation
The ATO allows businesses to claim a tax deduction for the depreciation of your vehicle. The most popular method is the decline in value method, which enables businesses to claim a tax deduction for the decline in value of the car over its effective life based on its cost, residual value, and estimated useful life. You can depreciate a vehicle over five years, and the car can't be worth more than $64,741 at purchase.
Car depreciation example:
If you purchased a vehicle for $20,000, and the car depreciated 25% in year one, then the amount is:
$20,000 x 25% = $5,000
This $5,000 is deducted from the $20,000, and $15,000 becomes the starting value for the new financial year. So, in the second year: $15,000 x 25% = $3,750
And you continue with that calculation each year.
8. Claims for the cost of interest on a car loan
In Australia, businesses can claim tax deductions for the interest paid on a loan to purchase a vehicle for business use. The interest paid on the loan is considered a tax-deductible expense as it is directly related to the vehicle's use for business purposes. Businesses can claim a deduction for the interest paid over the life of the loan. It's essential to keep accurate records of loan interest payments, including loan statements and receipts, to support the deduction claim.
When making car expense claims as a small business owner there, the claims must meet the eligibility conditions set out by the ATO. You should keep a receipt of all the expenses you are claiming. For car mileage claims, you should maintain a detailed logbook of your trips and distances travelled.
Finally, remember that even if you don't own the vehicle yourself, that doesn't mean you won't still be able to claim some expenses. You can still claim deductions if you borrow a car from family or friends under a private arrangement or hire a car from a rental agency such as Hertz or Sixt.
Using a car for work is essential for many business owners. Whether driving to deliver goods, servicing clients or just getting from home to the office, the humble car helps make business happen. Hopefully, these eight easy examples have helped you understand what car expenses you can legitimately claim. Just push yourself to keep accurate records and receipts, and always drive safely!