Do you have a logbook to verify your motor vehicle tax deductions? Is this “logbook” actually just an estimate of your travel? Does the “logbook” exist anywhere outside of your imagination? A recent case that was tried by the ATO against a taxpayer has highlighted the importance of having an accurate logbook that can be relied upon should the ATO ever come knocking.
As an individual who owns a car that you use for work you’ve got two methods of calculating your motor vehicle tax deduction each year. You can use the super simple ‘cents-per-kilometre’ method or you can use the logbook method. The cents-per-km method is super simple because it doesn’t require any document substantiation, you just need to be able to explain how you came up with the number of kilometres you’re claiming for. Whilst simple, however, the maximum you can claim under this method is currently limited to $3,400 which is great if you don’t spend much on your car, but if you spend a lot you’ll want to claim more than this limit so the logbook method might be of interest.
The logbook method allows you to calculate your deduction based on actual costs multiplied by the ‘business use’ percentage as per your valid logbook. The logbook looks at the use of your car over a 12 week period and based on your work vs private split you get a percentage for work that you can apply against your costs to get your deductible amount.
What’s a valid logbook? It needs to:
- contain details of the car (e.g. model, rego, etc.) plus opening/closing odometer readings for the period in question,
- record all use of the car for a continuous 12 week period,
- record a period of time that shows ‘typical’ use of the car,
- each time the car is used the trip needs to be dated, described and marked as private or business,
- each time the car is used the opening and closing odometer reading needs to be recorded as well as the number of kilometres travelled,
- be less than five years old (though you can start a new one earlier than five years).
Failing to meet those criteria may result in the ATO saying the logbook is invalid and therefore your deductions are invalid. In the case mentioned above, the taxpayer, over several years, had around $50,000 in deductions knocked back which may have cost around them $25,000 in additional tax not to mention interest and possible penalties on top.
Why was the logbook deemed invalid in that case? In oh so many ways. The logbook had inconsistencies between the day of the week and the date, was missing odometer readings, dates were repeated, same odometer readings on different days and, the best one, business travel marked down on days that, when checked, his employer confirmed he was home sick. All in all, it gave the impression of a logbook that was hastily put together (i.e. fictionalised) when the ATO commenced the audit.
Moral of the story? If you’re relying on a logbook to make a claim, either personally or in your business, ensure your logbook is valid otherwise you could be in for a nasty surprise. Having a deduction knocked back for one year is annoying, but having the ATO go back multiple years can be very painful indeed.
If you need tax advice for yourself or your business, why not get in touch today? We’d be happy to help.