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Claim Motor Vehicle Costs

As a small business owner, accurately claiming your motor vehicle costs is crucial for maximising your tax deductions. This guide will help you understand how to maintain a logbook and claim expenses such as depreciation, fuel, insurance, registration, and interest on vehicle finance.

Understanding the Logbook Requirement

To claim motor vehicle costs, you need to maintain a logbook if your vehicle is not considered a “commercial vehicle.” This logbook should detail your business-related travel over a three-month period and provide a basis for calculating your business use percentage. Maintaining a logbook is essential as it serves as evidence for the business-related use of your vehicle, ensuring that you can substantiate your claims in case of an audit.

The Australian Taxation Office (ATO) has specific requirements for what must be included in the logbook. Failure to comply with these requirements can result in disallowed deductions, leading to potential financial penalties. Therefore, understanding and following the logbook rules is not only beneficial for tax purposes but also crucial for maintaining accurate business records.

Step-by-Step Guide to Recording a Logbook

Step 1: Record the Opening Odometer Reading

On the first day of the three-month logbook period, record the opening odometer reading of your vehicle. This initial reading marks the starting point for tracking your vehicle’s usage over the period. It is important to note the exact date and ensure that this reading is accurate.

An accurate opening odometer reading sets the foundation for your logbook. Any discrepancies at this stage can lead to issues later when calculating your business use percentage. Ensure that this reading is documented clearly and kept safe as part of your tax records.

Step 2: Log Each Business Trip

Each time you use your vehicle for business-related travel, record the following details in your logbook:

  • Date: The date of the trip.
  • Reason: The purpose of the trip.
  • Location: The starting point and destination.
  • Kilometres Travelled: The total distance covered for the trip.

Documenting each trip in detail ensures that you have a comprehensive record of your vehicle’s business use. This not only helps in accurately determining your business use percentage but also provides a clear audit trail. Ensure that your entries are precise and reflect the actual travel undertaken for business purposes.

By maintaining detailed trip records, you can differentiate between personal and business use of the vehicle. This distinction is crucial for calculating the correct business use percentage and avoiding potential issues with the ATO. Consistency in logging trips will make the process easier and more reliable.

Step 3: Record the Closing Odometer Reading

At the end of the three-month period, record the closing odometer reading. This will help you determine the total kilometres travelled during the period. The closing reading, together with the opening reading, gives you the total distance your vehicle has covered over the logbook period.

Accurately recording the closing odometer reading is as important as the opening reading. It marks the end of the tracking period and is essential for calculating the total kilometres travelled. Ensure that this reading is also documented and stored safely with your logbook records.

Step 4: Calculate the Business Use Percentage

To calculate the business use percentage, use the following formula:

Business Use Percentage

This calculation helps you determine the proportion of your vehicle’s use that was for business purposes. Applying this percentage to your motor vehicle costs allows you to claim the appropriate deductions.

Calculating the business use percentage is a straightforward process if your logbook entries are accurate. This percentage is crucial for determining how much of your vehicle-related expenses can be claimed as business expenses. Ensuring precision in your logbook entries will result in an accurate business use percentage.

Example Calculation

Here’s an example to illustrate the process:

  1. Opening Odometer Reading: 10,000 km (recorded on January 1st).
  2. Closing Odometer Reading: 20,000 km (recorded on March 31st).
  3. Total Kilometres Travelled: 10,000 km (20,000 km – 10,000 km).
  4. Total Business kilometres: 5,000 km (sum of all business trips recorded in the logbook).

Using the formula:

Business Use Percentage=5,000 km10,000 km×100=50%

You can apply this business use percentage (50%) to all your motor vehicle costs for tax deduction purposes. This example highlights the importance of accurate record-keeping and demonstrates how to apply the calculated percentage to your expenses.

By following this example, you can ensure that your vehicle expenses are accurately recorded and claimed. This process can lead to significant tax savings for your business, making it worth the effort to maintain a detailed logbook.

Logbook Validity and New Vehicles

According to the Australian Taxation Office (ATO), a logbook is valid for five years. This means that once you have completed a logbook, it can be used to substantiate your business vehicle use for the next five years, provided your business usage patterns do not change significantly.

However, if you purchase a new vehicle for your business, you are required to start a new logbook. The new logbook should cover a fresh three-month period to accurately reflect the business use of the new vehicle. Keeping your logbook up to date with any changes in your vehicle ensures compliance with ATO requirements.

Starting a new logbook when you purchase a different work vehicle ensures that your records are accurate and relevant. This practice helps maintain the integrity of your business records and supports your tax deductions, providing a clear and justifiable basis for your claims.

Contact AWF Consulting

For further guidance and support with maintaining your logbook and claiming motor vehicle costs, contact AWF Consulting. Our experts can help you navigate the complexities of tax deductions and ensure that you maximise your business benefits. Reach out to us today to learn more about how we can assist you in managing your small business expenses effectively.