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ATO Decision on Motor Vehicle Deduction: Taxpayers Discontent
The Australian Taxation Office (ATO) has announced that the cents per kilometre deduction rate for motor vehicles will remain unchanged for the 2025-26 financial year, staying at 88 cents per kilometre. This fixed rate allows taxpayers to claim expenses for up to 5,000 kilometres annually, translating to a maximum deduction of $4,400.
Background on ATO’s Deduction Rates
A spokesperson for the ATO confirmed that the decision was made based on a review of average operating costs for vehicles and the adjustments in the Consumer Price Index related to private motoring expenses. The current cents per kilometre rate reflects ongoing automotive expenses, with no increase forecasted for the coming year.
Belinda Raso, director of Tax Invest Accounting, expressed her disappointment over the ATO’s decision, describing it as a "kick in the teeth" for taxpayers. Raso had anticipated at least a minor adjustment to the rate, perhaps bringing it up to 92 cents per kilometre.
Rising Costs and Taxpayer Implications
Raso highlighted that with soaring fuel prices, the current deduction fails to adequately cover the expenses incurred by taxpayers, pushing many toward more labour-intensive methods for calculating deductions, specifically the logbook method for assessing vehicle expenses. She advised that this change could potentially lead taxpayers to compile detailed records of their business travel, including a logbook, to substantiate claims.
"Even if you travel less than 5,000 kilometres per year, you should consider maintaining a logbook as it might prove more beneficial given the escalating costs of fuel and vehicle maintenance," Raso noted.
Claiming Car-Related Expenses
In the 2023-24 financial year alone, car-related travel claims represented a significant portion of all work-related claims—approximately 3.6 million individuals claimed around $10.3 billion in vehicle-related expenses.
There are two primary methods for claiming motor vehicle expenses related to work: the cents per kilometre method and the logbook method.
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Cents Per Kilometre Method:
- Allows for claims up to 5,000 kilometres at the rate of 88 cents per kilometre.
- Covers all associated car expenses, including registration, insurance, fuel, and maintenance.
- Requires taxpayers to maintain a record of business travel, including purpose and frequency, but does not require a logbook.
- Logbook Method:
- Applicable for claims that exceed 5,000 kilometres.
- Requires a 12-week logbook of travel tracking both personal and business usage.
- Supports more extensive claims as it requires detailed record-keeping of all auto-related expenditures over the financial year.
Raso recommends taxpayers commence their logbooks now for better deductions, particularly if they anticipate driving over 1,000 kilometres. "Starting a logbook as soon as possible is highly advisable," she remarked, indicating that valid logbooks can last up to five years, provided there are no significant changes in the vehicle or the user’s circumstances.
Essential Advice for Taxpayers
Taxpayers should ensure to keep detailed records, including odometer readings at the start and end of trips. Additionally, if taxpayers opt to use application-based logbooks like Driversnote, the expenses for such apps are also deductible.
Raso emphasised the need for taxpayers to consult the ATO guidelines to ensure accurate documentation and maximisation of their claims. Costs associated with maintaining logs or documentations are deemed deductible, encouraging a proactive approach to managing tax obligations.
In conclusion, the ATO’s decision not to raise the motor vehicle deduction rate puts pressure on taxpayers already feeling the strain from rising fuel prices. Tax practitioners like Raso urge taxpayers to adapt their strategies in response, particularly by utilising comprehensive logbook systems to ensure they receive the full deductibility available.
