Increased Tax Deductions for Motor Vehicle Expenses on the Horizon for Australian Workers
As Australian workers grapple with rising fuel prices, there is potential for a boost in tax deductions for motor vehicle expenses under the auspices of the Australian Taxation Office (ATO). The ATO is slated to finalise its annual review of the cents per kilometre rate next month, with unions advocating for an increase to alleviate financial pressures on employees.
Currently, taxpayers can claim an amount of 88 cents per kilometre using this method. This figure encompasses all vehicle-related expenses, such as fuel, registration, insurance, maintenance, and repairs. The maximum claimable distance is capped at 5,000 kilometres per vehicle, equating to a maximum deductible amount of $4,400.
The ATO evaluates this rate annually, referencing recent average operating costs associated with vehicles and the fluctuations in the consumer price index as measured by the Private Motoring Subgroup. Historically, the rate was set by Parliament at 66 cents per kilometre in 2015 and has risen gradually to the present 88 cents per kilometre, maintaining this rate for the past two years.
The determination of the updated rate will rely on an average from the most recent four quarterly readings, juxtaposed against data from the previous year. Should the data from the March quarter either match or exceed the previous figures, an increase in the rate could be on the table. However, a tax expert has cautioned that the ATO may factor in tax revenue implications and alterations to the fuel excise tax when making its decision.
For those employing the cents per kilometre method, it is essential to demonstrate ownership of the vehicle, its use for business purposes, and how work-related kilometres were derived — typically via a mileage log. Alternatively, the logbook method could allow claims exceeding the 5,000-kilometre limit, although this would require maintaining a 12-week log and retaining evidence of all operational costs.
The Australian Council of Trade Unions (ACTU) has urged the federal government to instruct the ATO to enhance the claimed rate. The unions point out that the current rate of 88 cents significantly underrepresents the financial burden of vehicle use for work amid escalating fuel costs. Furthermore, the ACTU is pursuing a case in the Fair Work Commission aimed at increasing vehicle allowances for employees governed by modern awards that include vehicle provisions.
Under current regulations, vehicle allowances mandate that employers compensate employees a specified per-kilometre rate, reviewed and adjusted annually every July 1.
As discussions unfold and potential changes loom on the horizon, employees are encouraged to stay informed about developments regarding the cents per kilometre deduction and how they might benefit from any adjustments.
