Car Expense Claims: Cents per Kilometre vs. Logbook & $20,000 Write-Off
For small business owners, managing car expenses efficiently can lead to significant tax savings. In Australia, two primary methods to claim car expenses are the Cents per Kilometre Method and the Logbook Method. Additionally, the $20,000 Instant Asset Write-Off offers a powerful way for small businesses to deduct the full cost of eligible assets, including vehicles, in the year of purchase.
Cents per Kilometre Method
The cents per kilometre method is straightforward and often preferred by those with relatively low business car use. Here’s how it works:
Rate: For the 2024-2025 financial year, the set rate is 88 cents per kilometre.
Distance: You can claim up to a maximum of 5,000 business kilometres per car per financial year.
Record-Keeping: While detailed records aren’t required, you must be able to substantiate your business kilometres, typically with a log of trips or a diary.
Advantages:
Simplicity: It’s easy to calculate your claim, requiring minimal documentation.
No Receipts Needed: You don't need to keep fuel or maintenance receipts.
Disadvantages:
Kilometre Cap: You can only claim up to 5,000 business kilometres.
Fixed Rate: The rate may not reflect actual costs for high-use or expensive vehicles.
Logbook Method
The logbook method offers a more detailed approach, particularly beneficial for those with higher business use of their vehicles.
Logbook Requirement: Maintain a logbook for a continuous 12-week period. Record each trip's date, distance, and purpose.
Actual Costs: This method allows you to claim a percentage of your total car expenses, including fuel, repairs, depreciation, and insurance, based on the business use percentage.
Receipts: You must retain receipts for all expenses.
Advantages:
Potential for Higher Deductions: If you use your car heavily for business, you can claim more compared to the cents per kilometre method.
No Kilometre Limit: There’s no cap on the number of kilometres you can claim.
Disadvantages:
Detailed Record-Keeping: Requires meticulous documentation.
Time-Consuming: It takes more time to maintain and calculate than the cents per kilometre method.
$20,000 Instant Asset Write-Off for Small Businesses
The $20,000 Instant Asset Write-Off allows small businesses to immediately deduct the full cost of eligible assets, including vehicles, costing less than $20,000. This incentive aims to support business growth and cash flow by enabling quicker deductions on investments.
Eligibility:
Turnover: Your business must have an annual turnover of less than $10 million.
Asset Purchase: The asset must be purchased and used (or ready for use) in the income year you claim the deduction.
Limit: The cost of each asset must be less than $20,000 (exclusive of GST if you're registered for GST).
How It Works:
Immediate Deduction: Instead of depreciating the vehicle over several years, you can claim an immediate deduction for the business portion of the vehicle's cost.
Partial Business Use: If the vehicle is used for both personal and business purposes, you can only claim the business use portion. Use your logbook to determine the percentage of business use.
Advantages:
Improved Cash Flow: Deducting the full cost upfront can free up cash for other business needs.
Encourages Investment: Helps small businesses invest in essential assets without waiting years for depreciation deductions.
Example: Suppose you buy a vehicle for $19,000 (exclusive of GST) and use it 60% for business. With the instant asset write-off, you can claim 60% of $19,000, which is $11,400, as an immediate deduction.
Choosing the Right Approach
For small business owners, combining the logbook method with the instant asset write-off can maximize tax benefits. The logbook method allows you to accurately track and claim actual car expenses, while the $20,000 write-off provides an immediate deduction for new vehicle purchases.
Final Thoughts
Choosing the right method for claiming car expenses and leveraging the instant asset write-off can significantly impact your tax position. By understanding these options, you can make informed decisions that benefit your business's financial health.
For personalized advice on car expense claims, instant asset write-offs, or other tax matters, Tim Cook Tax is here to help. Our expertise ensures you maximize your deductions while staying compliant with ATO regulations.
📧 Contact us at admin@timcooktax.com to discuss how we can support your business's tax needs.