If you use your car for work-related purposes, you can claim a deduction in your tax return. This can in turn reduce the taxable amount you are liable to pay.
There are two different methods that you can use to calculate your work-related car expenses, namely the cents per Kilometre method and the logbook method. This article will focus on the logbook method and how you can use it to claim a tax deduction.
Logbook accounting allows you to calculate your deduction for work-related car use. This is based on actual expenditure and is recorded in a logbook where total kilometres travelled are compared to work-related kilometres travelled over the same period.
The logbook method is a great way to keep track of your car expenses and boost your tax refund by claiming those expenses on your tax return. Like any other legal matter, you need to send records as proof of your car expenses to the Australian Taxation Office (ATO) in order to claim a tax deduction.
If you are using your car for daily business operations, you will accumulate more car-related expenses than a person who is only using their car for private use. The logbook method will help you keep track of all car-related expenses – both private and business use.
For example fuel, maintenance, registration and interest on a logbook loan. On the other hand, the cents per kilometre method only allows you to claim a set rate for fuel. This means you miss out on all the other car-related expenses you can claim for.
The logbook method can therefore increase the likelihood of getting a larger tax refund than the alternative cents per km method.
You’ll need to record every trip you take with your vehicle in your logbook, whether that is for private or business use, over 12 continuous weeks. You will then use your logbook to calculate your car’s business use percentage.
Your business use percentage is the percentage of kilometres you travel with your car for business-related purposes. It is also the percentage of all your car expenses you have paid during the year. You will be able to claim a return on these expenses.
Keeping a car logbook makes it easier to calculate your business use percentage and helps provide the evidence that the ATO requires. It is important to note that each logbook is valid for only five years.
If you do not include all the trips you took within those 12 weeks, the ATO may mark your logbook as invalid and may reject all of your car expense claims.
There are four essential aspects you must remember when following the logbook method. These include:
To ensure that your claim is accepted by the ATO, you need to record what they deem necessary. Here is a list of the information they expect to see in your logbook:
If you have just started using the logbook method, you would need to keep a logbook for a minimum of 12 continuous weeks. This time period has to be representative of how you would normally use the car throughout the year.
In the event that you’ve begun to use your car for business reasons (with less than 12 weeks before the end of the financial year), you will be able to continue your logbook into the new financial year, as long as it covers the minimum 12 continuous week period.
A logbook is only valid for five years, but you are able to start a new one anytime.
We’ve discussed what needs to be recorded in a logbook, but there are specific aspects you should record in your daily individual entries. Here’s an easy 4 step guide on how to fill in your daily logbook entries:
There are many templates explicitly designed for the different kinds of motor vehicles a business may use. While cars are a common work vehicle, you may use the logbook to record expenses for other types of vehicles. You can record a logbook for different vehicles, such as:
Use our vehicle logbook template to record your travels. It accommodates for multiple vehicles of any type so that you may be able to keep track of all your vehicle-based expenses.
QuickBooks is a highly efficient accounting software that can help you easily handle your finances and make reliable business decisions. If you do not want to use the logbook method, QuickBooks has a mileage tracking tool that auto tracks and categorises kilometres travelled. For further professional advice, our ProAdvisor tool can help connect you with an accountant or a bookkeeper.
If you found this blog helpful, feel free to access our wide range of small business and accounting articles to help grow and improve your business.
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