The tax office signalled earlier this week it will be upping its focus on claims related to car expenses this tax time, after finding last year that a significant portion of claims were just below the limit of requiring detailed records.
However, some, like H&R Block’s communications director Mark Chapman, are sceptical of the ATO’s public statements about its compliance action.
“In a sense [they are] simply restating the widely known rules around car claims. The fact that the ATO has issued this at all though is indicative of the ATO’s continuing crusade to drive down work-related deductions,” Mr Chapman told Accountants Daily.
“For most taxpayers, who do the right thing, and make the correct claims, there is nothing to be concerned about. Of course, some taxpayers will game the system… but all the evidence is that the ATO’s current compliance processes are capable of picking up these ‘dodgy’ claims,” he said.
Tips for your clients
Partner for taxation services at HLB Mann Judd, Peter Bembrick, compiled some tips for clients who are concerned about the tax office’s latest warnings:
1. When calculating “business kilometres” for either the cents per kilometre or log book method, trips between home and work are treated as private.
2. A common exception is where someone drives from home to somewhere else such as a client’s premises and then on to work, in which case both legs of the journey are treated as business kilometres.
3. This would not extend to relatively minor tasks such as picking up the mail on the way to work — the stop needs to have a genuine work-related purpose.
4. Another exemption is for carrying bulky tools or equipment to or from work, but this exemption is intended to be limited, and does not extend to items such as laptop computers or files.
5. If the log book method is used to calculate a business percentage for claiming car expenses, it is important to keep the log book for a minimum continuous period of 12 weeks, and to keep a new log book every five years, or when your circumstances change significantly (e.g. a major career change or change in role, where it would be expected that the level of business car travel would increase or decrease significantly).
6. Another trap with the log book method is that, when calculating your total car expenses to which the business percentage is applied, the depreciation charge must take into account the “luxury car depreciation cost limit” which is currently $57,581. Where a car costs more than this limit, the annual depreciation charge for this purpose must be calculated as if the cost was $57,581, regardless of the actual cost of the car, and this is something that the ATO will take a very close look at.