GUIDE - TAXATION DEDUCTION
FOR MOTOR VEHICLE EXPENSES
Page 1
BUSINESS SYSTEMS
SYSTEMS REQUIRED TO OBTAIN A TAXATION
DEDUCTION FOR MOTOR VEHICLE EXPENSES
CONTENTS
Page
1.
Employer Supplied Vehicle
3
2.
Vehicle Log Book
3
3.
Fringe Benefits Tax
3
4.
Calculation Of Fringe Benefit Tax
4
5.
Statutory Formula Method
4
6.
Actual Operating Cost Method
4
7.
Self Employed Or In A Partnership
5
8.
Log Book Maintenance
5
9.
Travel For Business Of Less Than 5000 Kilometres Per Annum
5
10.
More Than 5000 Kilometres On Business - 12% Of Cost Method
6
11.
Most Appropriate Method
6
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BUSINESS SYSTEMS
SYSTEMS REQUIRED TO OBTAIN A TAXATION
DEDUCTION FOR MOTOR VEHICLE EXPENSES
There are a number of different systems currently in operation to obtain income tax deductions for motor
vehicle expenses. These can be summarised as follows:-
1.
Employer Supplied Vehicle
If the motor vehicle is supplied by the employer to an employee, (a working director is considered
an employee of the company), then the only way that 100% of motor vehicle expenses can be
claimed as an income tax deduction is if a log book is kept which details the purposes of all trips
made by the vehicle and all of those trips are for business purposes.
2.
Vehicle Log Book
If the vehicle is used exclusively for business (travelling to and from home is not a business
related expense) then you would be able to claim 100% of the vehicle expenses for income tax
purposes.
However, if your log book only supports that say, 70% of the mileage was for business related
purposes, then that is all that you would be able to claim as a percentage of the total expenses that
have been incurred on the motor vehicle.
3.
Fringe Benefits Tax
An alternative to this is to pay fringe benefits tax. This tax is based on the total annual kilometres
that the vehicle travels, irrespective of whether the travelling is for business or personal purposes.
As long as you record full details of the costs of running the vehicle then all of the vehicle running
expenses are tax deductible, but you have to pay fringe benefits tax.
If Fringe Benefits Tax payable was over $3,000 in the previous year then you will have to pay
Fringe Benefits Tax in four instalments during the following year.
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4.
Calculation Of Fringe Benefit Tax
Details of the calculation of fringe benefits as it relates to motor vehicle expenses are as follows:
There are two methods to calculate the taxable value of the motor vehicle fringe benefit Statutory Formula Method or Actual Operating Cost Method.
5.
Statutory Formula Method
1.
Determine the base value of the motor vehicle (original cost if owned, or market value if
leased). If a vehicle has been owned or leased for four years the base value is reduced by
one-third.
2.
Determine the number of kilometres travelled during the year to find the applicable
taxable percentages:
Less than 15,000 klms
To 24,999 klms
To 40,000 klms
Over 40,000 klms
3.
Multiply the base value of the motor vehicle by the applicable taxable percentage.
Multiply this amount by the Fringe Benefits Tax Rate 48.5%. (Reduce this by the number
of days the vehicle was not available for private use). Subtract any contributions by the
employee e.g:
Cost Price
Kilometres travelled per annum
$25,000 x 20%
=
Tax Payable 46.5%
6.
26%
20%
11%
7%
$25,000
17,000
$ 5,000 (taxable value)
$ 2,325
Actual Operating Cost Method
.1
Determine operating costs for the period, e.g. fuel, insurance, repairs and registration etc.
.2
Calculate depreciation for the period
.3
Calculate interest ( written down depreciated value multiplied by the benchmark interest
rate - regardless of what, is actually paid, if any).
.4
Add 1, 2 and 3 together.
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Multiply that amount by the percentage of private use during the year or part of the year when the
motor vehicle was used to provide fringe benefits. (This is determined by use of a log book to be
kept for a minimum of 12 consecutive weeks).
Deduct any employee contribution, e.g.:
Total Operating Costs
Written Down Depreciated Value $20,000 @ 22.5%
Benchmark interest $20,000 @ 6.05%
Private Use Percentage per log = 30% ($9,710 x 30%)
Tax Payable 46.5%
7.
$
$
$
$
4,000
4,500
1,210
9,710
=
$ 2,913
(taxable value)
= $1,354
Self Employed Or In A Partnership
If you are a self-employed person or in a partnership then the treatment of motor vehicles
expenses is different from that outlined above.
If you wish to claim a percentage higher than 33.1/3% of your motor vehicle expenses then you
must keep a log book. You must also keep full details of the expenditure that has been incurred in
running your vehicle. The percentage as per your log book that relates to business purposes, is the
percentage of the actual motor vehicle expenses that is claimed.
8.
Log Book Maintenance
In all cases the Taxation Office only requires the log book to be kept for 3 months, subject to there
being no major change in your use of the vehicle, which would render the 3 month period as being
non-representative of a full 12 month period.
9.
Travel For Business Of Less Than 5000 Kilometres Per Annum
If you travel less than 5,000 kilometres for business purposes per annum then you can claim motor
vehicle expenses on a cents/kilometre basis based on the size of the vehicle engine.
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Rates Per Business Kilometre
10.
Ordinary Car - Engine
Capacity
Rotary Engine Car - Engine
Capacity
1600 cc
1601 cc to 2600 cc
2601 cc +
800 cc
801 cc to 1300 cc
1301 cc +
Cents Per Kilometre
63 cents
74 cents
75 cents
More Than 5000 Kilometres On Business - 12% Of Cost Method
If you used your car to travel more than 5,000 Business kilometres during the year then you can
use the 12% of original value method. i.e. 12% of the cost of the car if you bought it or 12% of the
market value at the time you first leased it.
11.
Most Appropriate Method
As you can see from the foregoing, there are many variations on the treatment of motor vehicle
expenses. It is recommended that you consult your Professional Accountant for a discussion on
the most appropriate method of claiming for motor vehicle expenses as it relates to your business.
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