Bookkeeping and tax implications for car expenses

bookkeeping for car deductions

Per Kilometre Claims for Car Deduction

Australian Taxation Office has revealed that the most commonly occurring tax deduction claims over the years have been related to work expenses of employees which accumulated to $18 billion last year. If we go further into the work expense, the largest contributor is car expenses. It is an interesting fact for sure. ATO has applied certain legal implications upon it. Vehicle expenses as deduction claims are made by almost every Australian who earns taxable income. One should know the rules about this concept and have clear understanding for successfully gaining tax deductions. There are certain expenses which you can claim whereas other which you cannot. It is important to know the details about this for successfully applying tax deduction claims. It is must know for every bookkeepers Sydney.

Claims Allowed

ATO has made specific rules which make room for deduction claims. However, it is not the situation where you can make claims for travelling you had to do for unnecessary reasons. In case you have to carry lots of items like a ladder from one place to another then you could make a claim. It could be the travelling from home to work or from work to another place. You are entitled to make car deduction claim if you have two jobs in a day and direct travelling is required from one workplace to the second.

The costs which can be gathered under deductions header include the ones which incurred due to work reasons.  It is the cost which was required for generating assessable income. At the same time, it is important to understand that car expenses are only covered under cars. It cannot be used for other vehicles like motorcycle, van or SUV. No vehicle which has 9 or more passenger space can come under this category or the vehicle which has 1 ton capacity. These vehicles related expenses are covered under the head of “travel” expenses for bookkeeping services Sydney purposes.

Methods of Calculation

The first and foremost thing you need to do is prepare the records (bookkeeping Sydney) for business kilometers. An individual should keep the records with date, vehicle name, details and kilometers. The recorded data will help you be accurate. You have four different methods of calculating the deduction claim to file in your tax return. Try to gain as much understanding as possibly you could.

  1. Cents per Kilometer – with this method you have a fixed rate of cents for every kilometer traveled due to work reasons. By using the particular method, one can only make claim for maximum five thousands kilometers. In case you have traveled more than 5000 kilometers, you must limit the calculation to 5000 kilometers or choose a different calculation method. Diary records and receipts can play important role in this method. One should be able to prove his/her case as authentic.
  2. Original Value’s 12% – for this method certain luxury cars are not applicable. 12% of the original value of an individual’s car is the base for car expenses to be calculated. To use this method, you must have travelled at least 5,000 kilometers or more within one financial year.
  3. 1/3 Car Expense – here you are allowed to calculate and claim overall car expenses’ 1/3 portion in tax return. In this case, the car should have covered more than 5,000 kilometers during the financial year. The rules are strict with this method. One should have all the detailed proofs and evidences for supporting his/her case.
  4. Logbook – The base for this method is the percentage of car expense related to work which needs to be calculated and proved with use of a log book having all the records for at least 12 week time period. One is liable to update the log book after 5 years maximum. Odometer readings are necessary to provide from the time vehicle was acquired till it’s owned. Details for every kilometer traveled needs to be placed in the log book for mentioned time duration. Receipts will play a key role in here for claiming.

Individuals who are GST registered due to profession’s needs such as sole trader needs to have evidence in form of invoices for all car related expenses. It is the only way correct claim calculation could be done. We have briefly mentioned and discussed the different car vehicles which could be used and rates per kilometer for the year 2013/2014.

  • For rotary maximum 800cc and non-rotary maximum 1600cc rate per kilometer is 65 cents
  • For rotary maximum 1300cc with minimum 801cc and non-rotary maximum 2600cc with minimum 1601cc rate per kilometer is 76 cents
  • For rotary maximum 1300cc and non-rotary maximum 2600cc rate per kilometer is 77 cents

Just select one of the above mentioned methods for purpose of making maximum tax deduction claims. Consult financial or tax adviser for best advice on this subject. We hope our today’s editorial was worth reading.

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