Generally speaking, if you estimate that you have a fair amount of business or work-related business use of a motor vehicle (say more than 30% as a rule of thumb), it will be in your best interest to keep a logbook to claim tax deductions for motor vehicle expenses (unless an exception applies as outlined below).
If you are an employee and your employer provides you with a vehicle (either company owned or via a novated lease), please consult with your employer as to whether a logbook is required (this article is not intended for you).
A logbook must be kept for 12 weeks in the financial year you wish to claim the tax deductions. This means you must start it on or before 7 April of the year you wish to make the claim.
If you purchase a new car between 7 April and 30 June, you must start the logbook on a delivery of the car and it can cross-over into the next financial year.
The tax office is cracking down on proper record keeping. Your accountant must sight your logbook records if you want them to include logbook method deductions in your personal or business tax return.
Keeping a logbook is a simple process, as follows:
A. Record your odometer reading (today or tomorrow morning).
B. Each time you do a business or work-related trip, note the reason for the trip and the number of kilometres travelled (most vehicles have trip meters that will facilitate this, otherwise note the starting/ending odometer reading).
NB: Travel from home to work and vice-versa doesn’t count unless you have to transport bulky tools and equipment.
C. After 12 weeks, record your odometer reading again.
D. Deduct A from C.
E. Divide B by D. This is your ‘logbook percentage’.
F. Send a copy to your accountant.
G.Thereafter, note the odometer reading on 30 June of each financial year (for up to five years or until a new logbook is required as outlined below).
The above can be easily done using the notes function on your smart-phone or jotted down in a notebook. You can also purchase smartphone apps designed for this purpose.
Please note, the logbook method requires you to keep records of ALL your motor vehicle costs incurred during the financial year (estimates are not allowed). This can be best done within your business accounting software or on a spreadsheet.
You don’t have to keep a logbook if:
- You have a ute (with one-tonne capacity or more) or commercial vehicle that is primarily used for work or business purposes and any private use is only minor and incidental.
- The vehicle is owned in your personal name (including sole traders) and you would prefer to claim tax deductions using the ‘cents per kilometre’ method. This lets you claim up to 5,000km per annum at $0.66 per kilometre. You must keep written records to work out a reasonable estimate of your work or business-related kilometres.
- The vehicle is owned in your company name (or a trust with a trustee company) and you would prefer to apply the ‘statutory formula’ for fringe benefits tax purposes. This is a very technical area, please call us if you have queries on this point. If you do keep a logbook, it allows us to choose the most tax-effective formula for fringe benefits tax purposes on your behalf.
- You have kept a logbook in a previous year (no earlier than 30 June 2013) and your work or business-related use has not changed materially. We will still need a copy of the logbook. Please note, if you purchased a new vehicle in 2017/2018, a new logbook must be kept.
Once you keep a logbook and assuming your work or business-related use doesn’t vary materially, it can be relied on for up to five years or until you purchase a new vehicle.
Feel free to contact us if you would like any further advice in this area.