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 Page 2
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. Page 3
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 26% To 24,999 klms 20% To 40,000 klms 11% Over 40,000 klms 7% 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 $25,000 Kilometres travelled per annum 17,000 $25,000 x 20% = $ 5,000 (taxable value) Tax Payable 46.5% $ 2,325 6. 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. Page 4
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 $ 4,000 Written Down Depreciated Value $20,000 @ 22.5% $ 4,500 Benchmark interest $20,000 @ 6.05% $ 1,210 $ 9,710 Private Use Percentage per log = 30% ($9,710 x 30%) = $ 2,913 (taxable value) Tax Payable 46.5% = $1,354 7. 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. Page 5
Ordinary Car - Engine Capacity Rates Per Business Kilometre Rotary Engine Car - Engine Capacity Cents Per Kilometre 1600 cc 800 cc 63 cents 1601 cc to 2600 cc 801 cc to 1300 cc 74 cents 2601 cc + 1301 cc + 75 cents 10. 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. Page 6
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