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This is not advice. Items herein are general comments only and do not constitute or convey advice per se. The information contained in these articles is for guidance only and should not be relied upon without obtaining professional advice having regard to your direct circumstances.


Need-to-know: car deductions

Like most things in life, the way to make sure you are maximising your tax deduction for motor vehicles requires the greatest work.

This is because a log book must be kept that calculates the percentage of business travel the car does. Once this has been established a tax deduction can be claimed for the business percentage of the running costs of the car.

The log book must show the day the journey began and ended, the odometer reading at the start and end of the journey, the length of the journey in kilometres and the reason for the journey.

In addition the log book must show when the log book period begins and ends, the odometer readings at the beginning and end of the log book period, the total number of kilometres travelled during log book period, the number of kilometres travelled on business and the percentage that business kilometres were of the total kilometres travelled.

The tax regulations do not require a person to record all of their travel in a log book only the business travel.

Not having to record all of the travel, and just record the business travel, can be a trap.

When you don't have to record all travel inevitably some business travel may be missed. The only way to avoid this is to record all travel.

To make the job of keeping a logbook easier you should systemise the process and have it become a routine or habit.

A good system to follow is every time you get in the car complete the sections of the log book that require the date of the journey, the odometer reading at the start and the purpose of the trip.

This will give you all of the information needed.

The odometer reading at the start of your next trip is automatically the closing reading for the previous trip.

Once the twelve weeks are up, or at periodic intervals, the rest of the information can be completed and the distance travelled for each journey calculated. Another way of maximising the percentage of business travel is to put some thought into each trip.

For example instead of travelling from home to your business and then on to see a client you should go to the client first. When this is done all of the travel from home to business will then be tax deductible travel.

In addition when you use your car for business combine it with something that is private. For example if you have to do a trip to the bank or post office get your lunch or some other private shopping at the same time. This strategy works as long as the private travel is incidental to the business travel. It would not be acceptable to class a trip that involved a detour of more than a kilometre for a private purpose as all business related.

Once the logbook has been kept for the 12 weeks that logbook lasts for 5 years. In addition to the logbook a record must be kept at the end of each tax year that shows the starting and closing odometer reading for the year and it must also record the car's make, model, registration number and engine capacity.

When a car is sold during a year a new logbook does not have to be kept if the business use of the new car will be the same as the old car.

In this situation a formal nomination must be made in writing that specifies the replacement date and each car should be clearly identified.

This nomination should be retained should the ATO request to see it.

Max Newnham, August 22, 2008
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