When it comes to tax time, car-related deductions are some of the most common write-offs in Australia.
One study suggested that up to 40 per cent of all work-related tax deductions in Australia relate to driving and cars. Of course, with that volume comes more attention from the Australian Taxation Office and a higher likelihood of being caught out over a small mistake.
With that in mind, we’ve put together a short list of the biggest car-related tax mistakes Australians should watch out for.
1. Trying to claim the cost of your regular commute
In the eyes of the ATO, the line between work and your commute is firm. You can’t claim the costs of your morning commute as a deductible, even if you use that time to do work-related tasks, like answering emails or phone calls.
This even applies in situations where overtime is involved, or instances where public transport isn’t available, and you need to pay for a taxi to get to or from your place of work.
Elinor Kasapidis, senior manager of tax policy at CPA Australia, said, “The rules around travel to and from work haven’t changed. So, if you started driving to work as a result of COVID, you can’t claim these amounts.”
The ATO has recently issued warnings over this, with Assistant Commissioner Tim Loh saying that while some claims are expected to increase, car and travel claims are unlikely to be among them.
“Our data analytics will be on the lookout for unusually high claims this tax time, particularly where someone’s deductions are much higher than others with a similar job and income,” he said.
2. Claiming for equipment that isn’t required by your employer
If you can’t prove that the cost of carrying tools is something that’s required by your employer or there’s no safe place to store your equipment at work, then you can’t claim it on tax.
3. Double dipping on company car expenses
In the past, the ATO has warned against attempting to double dip when it comes to car-related expenses. So, it’s probably a safe bet that they’re on the lookout for those trying to do exactly that.
You can’t claim expenses that your employer has already paid for, including salary sacrifices.
4. Claiming expenses that you can’t back up
One of the most common mistakes that car owners can make is claiming car costs using the ATO’s cents-per-kilometre method without the receipts and paperwork to back this up.
Although you can claim up to 5,000 km a year at 68 cents in the 2020 tax year, tax experts warn that this shouldn’t be treated as a free pass.
“Motor vehicle claims using the logbook method may need to be adjusted to account for changes to driving patterns as a result of COVID,” Ms Kasapidis said.
“Keeping accurate and tax-compliant vehicle logbooks is essential. Businesses and employees must be able to prove their vehicle-related claims to the ATO if asked.”
5. Overlooking depreciation
While using your car for work or renting it out via a service like Car Next Door can open the door to additional tax deductions via depreciation, it’s always going to be worth your while to talk to an accountant before you put a number on things.
Rolling the dice and calculating depreciation on your own is rarely advised.
According to Ms Kasapidis, “The tax rules on vehicles can be complex. If you’re not clear what the tax implications of your car purchase or usage are, seek advice from a registered tax agent.”
6. Renting your car out and forgetting to claim allowable expenses
Any income generated through renting out a vehicle on platforms like Car Next Door is considered taxable income, so don’t forget to declare it in your tax return.
That said, expenses can be claimed for any costs that relate to this kind of rental activity. As usual, it’s worth talking to your accountant to see how much you can claim.
“If you’re earning income from car sharing, make sure you declare it in your tax return and claim the expenses you’re entitled to,” Ms Kasapidis said.