When preparing accurate tax returns, two typical areas where people get unstuck, with the Tax Office coming back asking for further information, is with claiming their legitimate expenses for both business car use and phone with business/home office use.
With the recent changes from the Tax Office to do with Car Expenses, I thought it is timely to remind our customers what the ATO will expect when they see your tax return for this year in these two areas.
From 1 July 2015 – two methods apply
The 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.
- 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.
Claiming mobile phone, internet and home phone expenses
If you use your own phones or internet for work purposes, you may be able to claim a deduction if you paid for these costs and have records to support your claims.
If you use your phones or internet for both work and private use, you will need to work out the percentage that reasonably relates to your work use.
Substantiating your claims
You need to keep records for a 4-week representative period in each income year to claim a deduction of more than $50. These records may include diary entries, including electronic records, and bills. Evidence that your employer expects you to work at home or make some work-related calls will also help you demonstrate that you are entitled to a deduction.
When you can’t claim a deduction for your phone
- Employer provided phone
- If your employer provides you with a phone for work use and is billed for the usage (phone calls, text messages, data) then you are not able to claim a deduction. Similarly, if you pay for your usage and are subsequently reimbursed by your employer, you are not able to claim a deduction.
How to apportion work use of your phone
As there are many different types of plans available you will need to determine your work use using a reasonable basis.
- If your work use is incidental and you are not claiming a deduction of more than $50 in total, you may make a claim based on the following, without having to analyse your bills:
- $0.25 for work calls made from your landline,
- $0.75 for work calls made from your mobile,
- $0.10 for text messages sent from your mobile.
Usage is itemised on your bills
If you have a phone plan where you receive an itemised bill, you need to determine your percentage of work use over a 4-week representative period which can then be applied to the full year.
You need to work out the percentage using a reasonable basis. This could include:
- the number of work calls made as a percentage of total calls,
- the amount of time spent on work calls as a percentage of your total calls,
- the amount of data downloaded for work purposes as a percentage of your total downloads.
This is not a complete list but is a quick look at the current information from the Australian Tax Office website to do with Car and Phone/Mobile expenses for Business use.. To find our more you can click the links above which will take you to the ATO website direct, or contact your Client Manager at your Chan & Naylor office who will be only too happy to assist you with further information.
Disclaimer: This article contains general information; before you make any financial or investment decision you should seek professional advice to take into account your individual objectives, financial situation and individual needs. Click for more detail regarding this disclaimer.