All about MV Expense Deduction for individual tax returns

Employees may use their own cars for working purpose -e.g sales people drives car to meet clients, Office Administrator may drive car to bank or post office . you can claim these MV expenses in your tax returns as taxable deduction only if :

  • The MV expense is only working related (e.g the most common mistake is people try to claim the KMs or the fuels for travelling between home and work, according to ATO rule, these are all private nature, which means not tax deductible)
  • Either your KMs or the value of Fuel used for working purpose are measurable -( tips: you may need a logbook in your car to record all working or business related travel )The two methods to claim your MV expense :From 1 July 2015 – two methodsThe government has simplified the car expense deductions for 2015–16 and future income years. From 1 July 2015, the one-third of actual expenses method and 12% of original value method have been abolished.The two methods available from 1 July 2015 are:
    • cents per kilometre method (with some changes)
    • logbook method (with no change to its rules)

    Cents per kilometre method

    The cents per kilometre method is available for use with some changes. Separate rates based on the size of the engine are no longer available from 1 July 2015. Under the revised method, individuals use 66 cents per kilometre for all motor vehicles for the 2015–16 income year. The Commissioner of Taxation will determine the rate for future income years.

    • Your claim is based on 66 cents per kilometre for 2015–16 income year
    • You can claim a maximum of 5,000 business kilometres per car
    • You don’t need written evidence but you need to be able to show how you worked out your business kilometres (for example, by producing diary records of work-related trips).

    Where you and another joint owner use the car for separate income-producing purposes, you can each claim up to a maximum of 5,000 kilometres.

    Logbook method

    • Your claim is based on the business-use percentage of the expenses for the car.
    • Expenses include running costs and decline in value but not capital costs, such as the purchase price of your car, the principal on any money borrowed to buy it and any improvement costs.
    • To work out your business-use percentage, you need a logbook and the odometer readings for the logbook period. The logbook period is a minimum continuous period of 12 weeks.
    • You can claim fuel and oil costs based on either your actual receipts or you can estimate the expenses based on odometer records that show readings from the start and the end of the period you had the car during the year.
    • You need written evidence for all other expenses for the car.

    See also:

    Before 1 July 2015 – four methods

    For 2014–15 and earlier income years, there are four different methods for claiming work-related car expenses when using your own car, or one you leased or hired under a hire-purchase agreement.

    The four methods are:

    You may need to make some adjustments to your claim if the car is jointly owned.

    If you use a borrowed car or a vehicle other than a car for work purposes, you can claim the costs you incur (such as fuel costs) as a travel expense. You can’t use any of the methods described here to calculate your claim.

    1. Other Travel Expenses

    Other travel expenses you may be able to claim include:

    • travel expenses you incurred for meals, accommodation and incidentals while away overnight for work, such as going to an interstate work conference (generally, you can’t claim for meals if your travel did not involve an overnight stay)
    • the costs you actually incur (such as fuel costs) when using a borrowed car or a vehicle other than a car for work purposes
    • air, bus, train, tram and taxi fares
    • car-hire fees.

    You may have to show that you have reduced your claim to exclude any private portion of your trip.

    If your travel expenses are reimbursed you cannot claim a deduction.

    1. Home office expenses

    You may be entitled to claim deductions for home expenses including a computer, phone or other electronic devices you are required to use for work purposes, as well as a deduction for running costs.

    As an employee, generally you can’t claim a deduction for occupancy expenses, including rent, mortgage interest, council rates and house insurance premiums.

    Running costs

    If you perform some of your work from a home office, you may be entitled to a deduction for the costs you incur in running it, including: for home office equipment, such as computers, printers and telephones, the cost(for items costing up to $300) or decline in value (for items costing $300 or more) work-related phone calls (including mobiles) and phone rental (a portion reflecting the share of work-related use of the line) if you can show you are on call, or have to phone your employer or clients regularly while you are away from your workplace heating, cooling and lighting the costs of repairs to your home office furniture and fittings cleaning expenses.

    1. Income you must declare

    our income is declared on your tax return each year. Most of this information is pre-filled from details we receive from employers and financial institutions, but there is some you will need to record manually.

    Regardless of whether your income is pre-filled or manually entered, you need to make sure it is accurate and complete.

    The links below provide information on the types of income you need to declare:

    Other income – including compensation and insurance payments, discounted shares under employee share schemes, and prizes and awards.

    For Business :

    What`s the business structure should I choose for my business ?

    When you start a business in Australia, you may be confused about how to choose the business structure .   Sole Trader, Company, Trust & Partnership What`s the difference ? Which structure is best for you  ?

    Sole Trader :

    A sole trader business structure is a person trading as the individual legally responsible for all aspects of the business. This includes any debts and losses, which can’t be shared with others. This is the simplest, and relatively inexpensive business structure that you can choose when starting a business in Australia. As a sole trader, you’ll generally make all the decisions about starting and running your business, although you can employ people to help you.

    Advantages  of Sole Trader :

    • You will be taxed at Individual tax rates –this is benefit when your net profit of your business is low- ( less than 100K a year ), if you are trading under company ( Pty Ltd ), you will be taxed at fixed 30% for any single dollar of your profit . with individual tax rates, as in general you have first 18K tax free threshold , and also 19% tax rates up to 37000, so the combined tax rates are normally lower than paying company tax rates when your net profit is low.
    • Low cost to run the business : you don`t need pay accountant or lawyers to set up a new entity (e.gcopany, trust & Partnership ). And you only need prepare one tax return -individual return
    • You may use the loss to offset your other individual income : when your business turnover is over 20K a year, you may claim the business loss to against your other income (e.g Investment property , wages ) . you may get more tax refund from the loss of your business

    Disadvantages of Sole Trader :

    • You have unlimited liabilities – which means you are persona liable for tax debts and legal liabilities. You may be personal charged or enforced to be bankruptcy if you fail to meet obligations.
    • You will be taxed at individual rates – That`s correct, this would be either advantage or disadvantage depends on the situation, when your business turnover and profit margin is high-e.g over 300K a year, you will be charged at marginal rates (46.5%) for net profit after $ 180K. which will make your combined tax rates over 30% .
    • Business Creditability & Reputation- when your clients search your ABN with ABN lookup, they may find you are running a business under your personal name, if they are going to sign a big contract , they may reconsider your creditability.

    Company :

    A company is its own legal entity and lets you conduct business throughout Australia. You can also make use of other privileges, such as corporate tax rates or limited liability.

    Advantages of Company

    • Limited liabilities : this is most advantage of running business under a company structure, the shareholder will have limited liabilities for obligations ,(e.g tax debts )
    • You will be taxed at fix rates-30%: the tax rates are fixed at 30% so you don`t need worry to pay higher tax rates when your net profit is high
    • You are more flexible to do tax planning : you may distribute some of your company profit to associate (e.g shareholder/ paying dividends ) to do the tax planning to achieve lower tax rates

    Disadvantages of Company

    • More legal compliance (compare with sole trader ): as a company, there will be more legal compliance (e.g ASIC/ATO/ certain insurances ).
    • You can`t use company money as your pocket money: this is very common problems for small-medium business owners, when they transfer the business structure from sole trader to company, they still keep withdrawing money from company bank account regularly. This will lead to Directors Loan issue ( Div 7A Loan ).

    Others- Partnership & Trust

    Trust :

    A trust is a business structure whereby you operate the business as a ‘trustee’. This means you are responsible for holding income, assets or property for the benefit of others, who are then referred to as ‘beneficiaries’. A trustee could be an individual person, a number of people (partnership) or a company

    Partnerhsip :

    A partnership is defined as being two or more persons (partners) engaging in business together with a view to make profit – this is sometimes referred to as a ‘strategic alliance’. While partnerships don’t legally have to be equal for the partners involved, all partners share the responsibilities and risks involved in running the business.

    Income from a partnership

    While a business partnership doesn’t pay tax on its income, it must lodge a partnership tax return declaring all income earned and all deductible expenses. It will also show how the net income or loss was distributed between the partners.

    Each partner must declare their individual share of the partnership’s net income or loss in their individual tax return, whether or not they actually received the income.

    For capital gains tax (CGT) purposes, each partner owns a proportion of each CGT asset and calculates a capital gain or capital loss on their share of each asset.

    The individual partners make a capital gain or capital loss from a CGT event, not the partnership itself.

    Income from a trust

    Like a partnership, a trust is not a separate taxable entity, but the trustee is required to lodge a tax return for the trust.

    Generally, the beneficiaries of the trust declare the amount of the trust’s income to which they are entitled in their own tax return and pay tax on it – even if they didn’t actually receive the income.

    An exception to this is, you don’t need to declare a trust distribution if family trust distribution tax has already been paid.