If you want to claim car expenses on your tax return, there are a couple of things you should take note of.
On 1 July 2017 the ATO revised the thresholds that relate to cars. While the changes aren't significant, you will need to be aware of them if you are to avoid penalties.
From 1 July 2017 the following car threshold amounts apply.
There's an upper limit on the cost you use to work out the depreciation for the business use of your car or station wagon (including four-wheel drives). You use the car limit that applies to the year you first use or lease the car. The car limit for 2017–18 is $57,581.
Goods and services tax (GST)
Generally, if you purchase a car and the price is more than the car limit, the maximum amount of GST credit you can claim is one-eleventh of the car limit amount.
You can't claim a GST credit for any luxury car tax you pay when you purchase a luxury car, regardless of how much you use the car in carrying on your business.
Luxury car tax
From 1 July 2017 the luxury car tax threshold for luxury cars increased to $65,094.
The threshold for fuel efficient luxury cars for the 2017–18 financial year remains at $75,526.
In general, the value of a car includes the value of any parts, accessories or attachments supplied or imported at the same time as the car.
Claiming on income tax
There are two methods that can be used to claim your car expenses on your income tax return. You can choose to use either the logbook method or 'cents per kilometre'.
The most straightforward method is probably cents per kilometre method. By keeping accurate usage records via a logbook or similar, you are entitled to claim a set amount per kilometre driven up to a maximum of 5,000 kms. There is no need to claim additional expenses such as depreciation, fuel or running costs as these have been factored into the rate the ATO specifies.
The second method is called the logbook method. It is slightly more complex than cents per kilometre but it may give you more flexibility regarding what you are able to claim and if your business percentage is high this method will usually result in a better deduction. Using a logbook, you will need to keep accurate records over a 12-week period which you then are able to use as the basis of a full year claim.
Work out what percentage of the kilometres over that period relate to business, and then use that factor to work out a full year's claim based on the total expenses incurred in that year. You may also be able to claim depreciation separately in this instance. There is a limit to how much you can claim and the cost of the vehicle has a maximum value allowable of $57,581. For more information, visit the ATO website.
Luxury car tax
If your car is classed as a luxury car, you will need to pay luxury car tax. This kicks in when the cost of the car is greater than $75,526 for fuel efficient luxury cars, and $65,094 for all others. Don't forget to include the cost of any accessories, parts and attachments that come with the car when you are calculating its value.
If the cost of your vehicle exceeds these thresholds (GST inclusive) you will need to pay the tax which is currently 33%.
If you use your car purely for business then you may be able to claim a GST credit - you will of course need to be registered for GST if you are to do this. There may also be an opportunity to claim a partial credit if you have private use, but this should be considered on a case by case basis in consultation with your accountant as there are some specific rules relating to eligibility
You also need to take into account any ATO imposed limits, such as that detailed above under income tax, as you cannot claim GST on the portion of the vehicle that exceeds this limit.
Stone Accountants & Advisors are here to guide you through your taxation obligations and are experts on vehicle expenses. If you would like to talk to us about what you can claim and would like assistance on how you can obtain the best results from your income tax return, give us a call on (03)9870 7247 or send us an email at email@example.com.