ATO warning: Millions of Aussies making 'surprising' tax deduction mistake

Eire Consulting founder Jenny Theodore told Yahoo Finance she was seeing many people claiming 5,000 kilometres of work-related car expenses on their tax return this year as a "given" without providing any records.

Millions of Aussies who use their car for work may be able to claim up to $4,250 without keeping a logbook, but they’ll still need to back up the deduction.

If you use your car for work, you can use the “cents per kilometre method” or the “logbook method” to calculate deductions for work-related car expenses.

The cents per kilometre method lets you claim up to 5,000 work-related kilometres. This covers all car expenses, the ATO notes, including the vehicle’s decline in value, registration, insurance, maintenance, repairs and fuel costs.

For the 2023-24 year, you can claim 85 cents per kilometre or a deduction of up to $4,250 in total through this method.

Eire Consulting founder Jenny Theodore told Yahoo Finance the logbook method was better for people who travel a lot for work and would “absolutely” give you a better deduction. But the records required were more onerous.

“It’s keeping 12 weeks of travel records for all travel that you do not just work-related. So for people, that’s quite a lot of hassle and they just don't do it,” she said.

What car expenses can I claim?

You can only claim expenses for work-related trips. This includes trips between workplaces or to perform your work duties, but it does not include trips between your home and work.

Theodore said it was a common misconception that people could claim travel between work and home.

“Any travel to and from work is deemed personal or private in nature and cannot be claimed as a tax deduction,” she told Yahoo Finance.

“It’s really only for travel if you are going between jobs or if you are in your office and going out to client meets and that type of thing, that’s where it is a tax deduction.”

According to the ATO, more than three million taxpayers claimed a deduction for car expenses in 2023.

What records do I need?

Cents per kilometre method

You don’t need to keep a logbook but you will need to keep records to show how you worked out your work-related kilometres.

For example, the ATO said you could record your work-related trips in a diary or use the myDeductions tool in the ATO app.

“The ATO would expect to see some form of record, whether it’s an Excel spreadsheet or extracts from your calendar or diary records to show that you did actually make these business trips during the year that helped you then to arrive at this 5,000 kilometre or whatever it was,” Theodore said.

“It’s definitely less onerous records that are required but it’s still not just a given that you can put it in. If you are ever reviewed or audited by the ATO they will look at how you came up with this claim you are making.”

Logbook method

The logbook needs to show your trips for a continuous period of at least 12 weeks. You’ll need to include the destination and purpose of every journey, the odometer reading at the start and end of each journey, and the total kilometres travelling during the period.

You’ll also need to include odometer readings for the start and end of the logbook period, and readings for the start and end of the income year you use the logbook. Logboods are valid for up to five years.

Theodore said it was always worth keeping more detailed records than you might think you need to just in case.

“The more records you have, the greater your deduction will be so it’s worth it in the long run,” she said.