Running a business from home or being a sole trader comes with legal responsibilities and accountabilities to the taxman. Claiming travel expenses as tax deductions can often be tricky, as in the case of claiming tax deductions on vehicles for business use.
As a sole trader, you may be eligible to claim a deduction for use of your vehicle for business purposes. However, eligible expenses should be just the ones incurred on business use, and for any vehicle that your business may own, lease, or hire.
What can you claim on vehicle expenses for business use?
An easy way to remember what you can claim on work related car expenses is to look at them in three categories:
- Running expenses – fuel, oil, repairs and services
- Regular payments – lease/interest on vehicle loans
- Legal requirements – insurance and registration expenses
A common question that sole traders ask is if they could claim on costs incurred when travelling between home and place of business. Unfortunately, you cannot claim this on sole trader tax deductions. However, you could claim the cost of travelling to other places on work from home, such as making client visits.
An important thing to remember when you claim vehicle expenses for business use is to hold on to all receipts for your motor vehicle expenses. You could claim based on the cents per kilometre method, or the vehicle logbook method.
How to claim vehicle expenses using the cents per kilometre method
If your maximum claim is less than 5000 kilometres per vehicle claimed, you could use the cents per kilometre method to claim vehicle deductions for business.
The best part of this method is its simplicity – you would only have to multiply the total kilometres travelled on business, by a set rate per kilometre travelled. The rate for calculating the cents per kilometre method is set at 66 cents per kilometre for the financial years of 2015-16, 2016-17, and 2017-18 (these rates are reviewed annually).
So, how much does an average Australian drive? Recent statistics from an Australian insurance provider puts the distance at more than 10,500 km per year. If this were being used for business use it could account for a massive tax deduction of $3,300 each year, based on the 66 cents a kilometre method!
A point to note is that when you use this method, you do not have to provide evidence to prove the distance travelled, but you cannot claim for depreciation separately for the vehicle claimed either.
How to use the logbook method to claim business expenses
The vehicle logbook method is used to claim deduction for business use of vehicle through a calculation of the percentage of travel for business, and multiplying all expenses, including depreciation, by that percentage.
For instance, if the business use of Joe’s vehicle was 30% of total use, and total vehicle expenses, including depreciation, amounted to $8,000; Joe would be eligible to claim 30% of $8,000, which would be $2,400.
With the business logbook, you are required to have written evidence of odometer readings that your calculations are based on, along with evidence of the expenses that you claim.
However, you could save all that trouble with a user-friendly app that manages the motor vehicle logbook, or the e-logbook. The car logbook app is customisable, keeps a log of your trips, maintains your expenses, and eliminates tax time stress.
Travel expense claim takeaway:
Home business owners or network marketing businesses often are not sure about tax deductions. Claiming deductions on business expenses can save you valuable dollars, and claiming vehicle expenses is an important part of deductions.
An easy way forward is for you is to make informed decisions and maintain the required documents. You could get ahead of times and save yourselves time, money, and stress by complying with requirements and adopting technology such as the log book app, even as you focus on what matters