Ever wondered what car expenses are tax deductible? In today’s world, where every penny counts, people are constantly seeking ways to maximise their tax deductions. Some common questions that often arise are, “Can you claim parking on tax, can you claim car rego on tax, and can you claim car insurance on taxes?” The answer, as you might expect, is not a simple yes or no. Read on to see each of these questions and more answered with an explanation to make sure you understand whether each of your car expenses are tax deductible.
In this article, we will cover the methods of claiming car expenses, answer the question of which expenses you can claim, and how to determine the business-related use of your car. This blog is for you, if you would like to claim more on your next tax return.
What are the methods for claiming car expenses?
Typically, there are 3 methods for claiming car-related expenses on your tax return. The logbook method, the actual cost method, and the cents per km method. Here is a quick breakdown of the methods used to claim car expenses, for an in-depth look, read our Claiming Vehicle Expenses for Individuals, blog.
Logbook method
This method involves recording your work-related car expenses in a logbook for a minimum of 12 weeks. The logbook method allows you to use the same list of car expenses for the next 5 years.
Actual cost method
Like the logbook method, the actual cost method involves using a logbook to track your expenses. The difference is this method requires you to record your expenses throughout the entire year.
Cents per km method
This method uses a single rate per kilometre travelled to claim expenses. You can claim up to 5,000km per year using the cents per km method. The FY23-24 rate is 85 cents per km. That means you can claim up to $4,250 per year.
Can you claim parking on tax?
You may have asked “Can I claim parking on tax”, the quick answer is, that it depends on your reason for parking. You are able to claim your parking as a tax deduction if you are using your car for work-related reasons.
For example, if you visit a job site, pick up supplies, or you are attending a client meeting, you can generally deduct the parking costs as a deduction on your tax return.
Conversely, you are unable to claim parking on tax if you are using your car for personal reasons. Your daily commute to work is considered a personal expense so you are unable to claim parking at your place of work as a tax deduction.
Please note, that parking is considered a work-related travel expense and not a car expense on your tax return, although it can still be claimed as a deduction.
Can you claim car rego on tax?
Vehicle registration fees can cost individuals and businesses hundreds, if not thousands of dollars per year. That raises the question, “Can I claim car registration on tax”.
You can claim car rego on tax if the car is used for business purposes and you use the logbook or actual method for claiming your car expense tax deduction. The portion of the car used for personal circumstances is not tax deductible.
For example, your car registration costs $800 for the year. If you have used your car for 60% of the time for work-related reasons, you can claim $480 ($800 x 60%).
Car registration can not be claimed if you are using the cents per km method as it is already considered in the calculation of the cents per km rate.
Can you claim car insurance on taxes?
The work-related portion of the insurance on your car is also claimable as a tax deduction. As with the car registration tax deduction example above, you will need to be using either the logbook or actual method for claiming car tax deductions to claim this tax expense directly.
For example, you are currently paying $1,200 per year for your car insurance. You used your car 60% of the time for work purposes. This means you can claim $720 ($1,200 x 60%) on insurance as a tax deduction.
Like claiming car rego, insurance is unable to be claimed under the cents per km method as it is already considered in the calculation of the cents per km rate.
How do I determine the business use of my car?
If you want to claim car expense items individually, the work-related use of your car can simply be calculated by maintaining a logbook. Keep note of the kilometres you travel every time you use your car for work. Divide the kilometres travelled for work by the total kilometres you have driven for the period.
For example, you drove your car for 1,800km for work purposes. Additionally, you have driven your car for a total of 4,000km for the year. You have used your car 45% of the time for work-related reasons (1,800km / 4,000km).
In this example, you can claim 45% of your total car expenses as you have incurred the expenses for work. There are a heap more car expenses and it is a detailed area to fully understand. We’ve answered a few of the questions about deductibility of car expenses, but you likely still have more. Check out our ebook on car expense tax deductions for more information including a free downloadable car logbook.
Stop stressing about your taxes!
One Click Life can help you claim your car expenses in your next tax return. Dealing with an online tax agent is the simplest way to complete your tax return.
One Click Life is an experience run by a team of accountants that is easy to use and provides online tax returns at the click of a button. You can manage, organise and track all your life admin in a single place, so you can spend more time doing things you really enjoy in life.