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Changes to Work-Related Motor Vehicle Expense Deductions

Article By Adam Hurwood | | Accounting & Tax
In the 2015-2016 Federal Budget, the Government proposed substantial changes to an individual taxpayer’s option for claiming tax deductions for the use of a work-related motor vehicle.

Traditionally, tax payers were eligible to claim a work-related motor vehicle expense deduction using one of the following four methods.

• Cents per Kilometre
• 12 per cent of original value
• One-third of actual expenses
• Logbook

The proposed changes expected to take effect from 1 July 2015, will discontinue the 12 percent of original value and the one-third of actual expenses methods. This means a taxpayer will be able to claim a maximum deduction for up to 5,000 work-related kilometres based on a reasonable estimate or maintain a logbook for 12 weeks and claim actual expenses based on a work-related use percentage.

Change to Cents per Kilometre Method

From 1 July 2015, the government has also proposed changes to the cents per kilometre calculation. The proposed change will see the three different rates for different engine sizes become irrelevant with the introduction of a flat rate of 66 cents per kilometre for all vehicles. This change will reduce the deduction for taxpayers with larger engine vehicles.

Log Book Method

Given the abolishment of the above-mentioned methods, together with the reduction of the rate per kilometre method, to maximise the deductibility of the usage of a work-related motor vehicle, we’re encouraging all individual taxpayers to consider transitioning to the Log Book Method.

This method can be used regardless of the kilometres travelled. The deduction is calculated by multiplying all expenses incurred, by the business percentage specified by maintaining a log book.

The log book must be kept for a 12 week continuous period and once completed, the percentage can be used for up to 5 income years before a new log book is required to be kept.

If you are interested in completing a log book to maximise your work-related motor vehicle deduction, and ensure you know precisely how you may be affected by these measures or record keeping requirements, please consult your Altitude adviser.