Vehicle expenses for small business

Keeping accurate records for small business is essential for tax deductions. Motor vehicle expenses can be a high expense for a small business and it is important to differentiate the time used for business and the time used for personal use of a vehicle.

The log book method

To use the log book method you must keep a logbook for a period of 12 consecutive weeks, detailing the date of travel, odometer start and end readings, the number of kilometres travelled and the reason why the journey was undertaken. Also odometer readings at the start and end of the year are required.

You must own the vehicle or have a lease agreement. Multiple cars need to have separate logbooks, unless one car is replacing the other.

Once you have a logbook for 12 weeks against a representative period, ie not just a period of high usage, you can keep it for 5 years.

If receipts are not kept, we can use the Tax Commissioners average fuel formula.

ie. (Km travelled x Fuel consumption ) x Average fuel price

Expenses that can be claimed include

  • Fuel and oil
  • Car registration
  • Insurance
  • Services and repairs
  • Car washing
  • Interest on car loan
  • Lease payments
  • Tyres and batteries
  • Depreciation on the vehicle

The C per Kilometre method

The ‘cents per kilometre’ method allows a taxpayer to calculate a claim for deductible car expenses based on a standard rate per kilometre. This rate is calculated to take into account all the expenses of running a car, including fuel, decline in value, servicing, repairs etc. This means that an additional claim cannot be made for any of these costs.

For the 2018 tax year, the rate was 66c per km and has increased to 68c per km for the 2019 tax year.

This method can be used to claim a deduction for up to 5,000 kilometres. It can also be used to claim car expenses where actual business kilometres exceed 5,000, but only in respect of the first 5,000 kms. The full 5,000km limit is available even where the car is used for only part of the year.

Where there are joint owners of the car, each person is eligible for the 5000 km limit, however if it is used jointly, only one person can claim the trip.

The number of business kilometres is based on a taxpayer’s reasonable estimate and does not have to be supported by documentary evidence, such as formal logbooks etc. However, the taxpayer MUST be able to show how they worked out their business kilometres. This is easiest by using one of the many logging apps, like QuickBooks self employed.

Sharon Law 
SL Accounting Services
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