The Value of a Good Car Logbook
Why is it important to keep a Motor Vehicle Logbook?
Have you been using your car to fulfill certain duties related to running your business? If you are, you might want to start keeping a thorough record of your car-related expenses to ensure that you will be able to maximise your tax claim. Many taxpayers are missing out on the opportunity to maximise their claim because of poor record keeping. In addition, not having a valid car logbook is also costing many of them dearly when undergoing a tax audit.
What do you need the car logbook for?
If you run a business through a company or a trust (vehicles registered in Company name) – If you have purchased a vehicle through your business, you are generally entitled to claim input tax credit under the GST regime. Also, under this program, you must be fully aware of your FBT obligations to ensure that you’re paying the correct amount of taxes for your personal portion of all motor vehicle expenses.
If you use your personal car (registered in your own name) for business or work purposes, you have two options:
- The ‘cents per kilometer’ method using a standard rate of 68 cents per business/work-related km travelled, which produces a maximum deduction of $3,400.
- The Logbook method, which uses your 12-week logbook record to create a work-related travel percentage of your car and multiplies it by your total motor vehicle expenses for the year to generate your result. There is no cap to what this expense amount can be.
What information must be kept?
Each logbook kept must contain:
- When the logbook period begins and ends
- The car’s odometer readings at the start and end of the logbook period
- The total number of kilometers the car travelled during the logbook period
- The number of kilometers travelled for each journey (if two or more journeys are made in a row on the same day, this can be recorded as a single journey). The following will need to be recorded:
- Journey start and finishing times
- Odometer readings at the start and end of the journey
- Kilometers travelled
- Reason for the journey
- The percentage of business use for the logbook period.
In the ATO’s view, when recording the purpose of the journey, an entry stating “business” or “miscellaneous business” will not be enough. The entry should sufficiently describe the purpose of the journey so that it can be classified as a business journey. Private travel is not required to be shown, but it may help to include in the records to help with calculations.
There’s an app for that
The ATO smartphone app containing the myDeductions tool may solve the record keeping dilemma, as it enables the individual to capture receipts for work-related car expenses as well as to enter information for a logbook.
Although the tool is appropriate for individuals wishing to claim work-related car expenses, it may not be appropriate for all FBT purposes. In any case, there are other third party apps that may satisfy the requirements under FBT law. Users should satisfy themselves that such apps fulfil the requirements under the tax law.
Important things to remember:
Things to be mindful of when using a logbook include:
- The logbook is valid for five years – after the fifth year, a new logbook will need to be kept. A new one can be started at any time (for example, if it no longer reflects the business use; whether you believe it to have substantially increased or decreased)
- The logbook must be kept for at least a continuous 12 week period but can be kept for longer if you wish
- For two or more cars – for income tax, the logbook for each car must cover the same period. For FBT, one logbook must be maintained for each car where multiple cars are provided by an employer
- The logbook must reflect the business use of the vehicle – this can be tricky where there are highly situational areas such as home-to-work travel, travel between workplaces, or if the individual’s work is itinerant in nature
- Odometer records must also be kept – this is crucial for working out the total distance travelled during the year and also for the relevant period that the logbook is kept.
If you would like more specific information on how this could apply to you, please give our office a call on (02) 4920 7886.