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Vehicle Travel Deductions - Log Book Method
The log book method is used to reasonably estimate the business use percentage of a taxpayer's car to apply to the total amount of car expenses incurred during the income year.
It is only available as an option to calculate your claim for vehicle deductions if the total work related kilometres travelled in the year exceed 5,000 kilometres.
The log book must be kept for a period of 12 continuous weeks and will be valid for 5 years, provided your circumstances don't change.
The following must be entered in the log book:
- When the log book period begins and ends
- The car's odometer readings at the start and the end of the period
- The total number of kilometres that the car travelled during the period
- The number of kilometres that the car travelled, in the course of producing the taxpayer's assessable income, on journeys recorded in the log book; and
- The number of kilometres referred to in (4), expressed as a percentage of the total number referred to in (3). This percentage is then multiplied by the total of all vehicle expenses to arrive at your claim.
Vehicle expenses will include;
- Insurance - Comprehensive or Third Party Property Damage
- Registration & Compulsory Third Party Insurance
- Lease Payments
- Hire Purchase or Loan Interest
The following log book records will also be required;
- the make, model and registration number of the car,
- if it has an internal combustion or rotary engine, its engine capacity expressed in cubic centimetres and
- if a taxpayer has nominated another car to replace the car, the same details are required of the replacement car.
With the end of the financial year looming, do not forget the prepayment rules. Small business concession taxpayers and individual non-business taxpayers can claim an immediate deduction for certain prepaid business expenses, where the payment is for a period that is 12 months or less and ends in the next income year. The expenses you should look to discharge under this rule include interest, leases, rates and insurance. Note that even if you are not a small business concession taxpayer, you can immediately deduct prepayment expenditure if it is less than $1,000.
In order to maximise your deductions for bad debts, you must ensure that they are written off during the year, before 30th June. Thus, we would advise you to go through your outstanding debt accounts and credit card payments and make the required accounting entries before the end of the financial year. Don't forget that you can partially write off a debt if you consider that you cannot collect the entire amount.
Jointly Owned Vehicles
Where a car is jointly owned, a mistake many people make when claiming deductions for work-related travel is that they assume that, because the car is already being claimed by one person, expenses cannot be claimed by a second person. This is incorrect. Under the cents per kilometre method, where a car is jointly owned, each owner is entitled to claim up to 5,000 kilometres for their work-related travel. The point to remember therefore is that the 5,000 kilometre limit applies to each joint owner, not to each car.
To Claim the Home Office or Not
Expenditure on a home office where claims can be made for a proportion of interest, rates etc. will normally expose the residence to capital gains tax. Let’s assume an architect conducts his business from a home office and the space devoted to this activity is 25% of the total floor space area. Claims can be made for 25% of interest, rates and proportions of utility costs, insurance, etc. The Taxation Office considers that on disposal the property will be proportionately subject to capital gains tax. This maybe of concern particularly where the property has enjoyed real gains in value. Where such a claim maybe optional, consideration should be given to not making the home office claim in the first place. This could ultimately save many thousands of dollars in capital gains tax. Self-Education Expenses. A part-time or full-time student studying at university, college, school or other place of education maybe able to claim the cost of self-education. There must be a direct connection between the study and current work activities. No claim is allowable where study is undertaken to get a new job, or to open up a new business or income earning opportunity.
Capital Allowance Write Off
Landlords listen up! You should review all your rental properties to ensure you are receiving your full entitlement to depreciation on the construction costs of income producing buildings on the property. Some landlords may not appreciate the potential of this tax deduction and how it can be turned into cost in the landlords pocket. Every income producing residential building where construction commenced after 17th July, 1985 qualifies for the Division 43 capital works allowance. The amount of the allowance depends on the date construction commenced. Buildings where construction commenced between 18th July, 1985 and 15th September, 1987 are entitled to the 4% claim per annum. The claim was reduced to 2.5% for buildings that where constructed after 16th September, 1987. The claim is allowable on the actual construction costs of the building. Tax Tips provided courtesy of Australian Taxation Reporter