As a business owner, you may be wondering if you can claim your car as a business expense. The answer is yes, but there are some important factors to consider before doing so.
In this guide, we will discuss the requirements for claiming your car as a business expense and how to calculate the deduction.
Requirements for Claiming Your Car as a Business Expense
To claim your car as a business expense, it must be used for business purposes at least 50% of the time. This means that if you use your car for personal use more than 50% of the time, you cannot claim it as a business expense.
Your car must be owned or leased by your business. If your car is owned or leased by you personally, you cannot claim it as a business expense. You must also keep accurate records of your car's usage for both personal and business purposes. This includes keeping track of the kilometres driven for business purposes, as well as the total kilometres driven.
Calculating the Deduction
If your car meets the requirements for claiming it as a business expense, you can calculate the deduction using one of two methods: the cents per kilometre method or the logbook method.
1) Cents per Kilometre Method
The cents per kilometre method allows you to claim a deduction based on the number of kilometres driven for business purposes.
In the 2020-21 financial year, you can claim a deduction of 72 cents per kilometre for cars with an engine capacity of 1,000cc or less, and 76 cents per kilometre for cars with an engine capacity over 1,000cc.
2) Logbook Method
The logbook method requires you to keep a logbook of your car's usage for a period of 12 weeks. This logbook must include details such as the date, starting and ending kilometres, and the reason for the trip (i.e. business or personal).
Once you have completed your logbook, you can use it to calculate the percentage of your car's usage that is for business purposes. You can then claim this percentage of your car's expenses, including fuel, registration, insurance, and depreciation.
Other Considerations
While claiming your car as a business expense can result in a deduction on your taxes, there are some other considerations to keep in mind.
If you use your car for both personal and business purposes, you may need to pay fringe benefits tax (FBT). FBT is a tax paid by employers on certain benefits provided to employees, including car use. If you are the sole owner of your business, this may not apply to you, but it's important to speak to a tax professional to determine your obligations.
Claiming your car as a business expense may have an impact on your insurance premiums. If you use your car for business purposes, you may need to inform your insurance provider and pay a higher premium.
It's also important to keep accurate records of your car's usage and expenses. In the event of an audit, you will need to provide evidence to support your deduction claims.
Conclusion
Claiming your car as a business expense can result in a deduction on your taxes, but it's important to ensure that your car meets the requirements for doing so. Additionally, it's important to consider the other factors discussed in this guide before making a claim. If you're unsure about whether you can claim your car as a business expense, it's best to speak to a tax professional for advice.
If you're a business owner struggling to keep track of your expenses, it's time to seek the help of a professional accountant. The ECommerce Accountant offers accounting services for e-commerce businesses to ensure you maximize your deductions. Get in touch with us today to learn how.
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