Car-related expenses are among the most commonly claimed tax deductions in Australia and account for some 40 per cent of all work-related deductions.
So, while businesses and employees that use their car for work are entitled to claim back related car costs, the ATO will be cracking down on wrongdoers.
Will Davies, CEO of peer-to-peer car-sharing platform Car Next Door, explained that while many people trip up over car-related expenses, surprisingly, some car owners may be claiming well below what they’re entitled.
“You’re entitled to claim your car-related expenses for using your own car to perform work duties such as carrying tools or other equipment needed for your job; travelling from home to an alternative workplace then back to your main workplace or home; travelling to meetings, conferences or events required by your employer; and travelling between two separate workplaces where you are employed and delivering or picking up items, as required by your employer,” Mr Davies said.
He pointed out that there are several big mistakes individuals commonly make when it comes to car-related deductions — from claiming normal travel to and from work to forgetting to claim depreciation.
6 top mistakes
- Claiming your normal travel to and from work: This isn’t claimable, even if you do a small work-related task like picking up the mail. Even if there’s no public transport available when you head home after working overtime, it’s not claimable either.
- Claiming for carrying equipment where it is not required by your employer: If you can’t prove this is required by your employer or there’s no safe place to store your equipment at work, then it’s not claimable.
- Claiming expenses associated with a company car or car purchased on a novated lease: Be careful not to “double dip” on car expenses — you can’t claim expenses that have already been paid for by your employer, including salary sacrificing arrangements.
- Claiming expenses without records to back them up: One of the most common mistakes car owners make is claiming car costs using the ATO’s cents-per-kilometre method, without the records to back them up. You can claim up to 5,000km a year at 68c per kilometre in 2020 tax year, but this is not a “free pass” — you must be able to provide documentation.
- Forgetting to claim depreciation: Many car owners forget to include depreciation when they’re adding up their annual car expenses at tax time. If you use your car for work or rent it out, ask your accountant about how you should calculate depreciation as it may add thousands to your allowable deductions.
- Not claiming all allowable expenses, if you rent your car out: Any money you earn from renting out your car is considered taxable income and must be declared on your tax return, but you can also claim expenses for the portion of your car costs that relate to the rental activity, or a simple 68 cents for every kilometre your car is driven by borrowers.