Many taxpayers miss out on maximising their claims due to inadequate record keeping. Once such instance is failing to maintain a valid log book. The car log book is an important piece of tax substantiation for those who use their vehicle in the course of performing their duties.

Changes to car expense claims make log books critical

From July 1, 2015, the following rules apply for work related car expenses:

• the cents per kilometre method will use a standard rate of 66 cents per kilometre rather than a rate based on the engine size of the car, and
• the one-third of actual expenses method and the 12% of original value method has been abolished because the Tax Office found that only 2% of taxpayers used these methods.

With the above changes, greater emphasis will be placed on individuals who travel more than 5,000 business kilometres to maintain a valid log book, if they opt for the log book method.

The log book method will therefore benefit an individual if their estimated deduction exceeds $3,300 for the 2015-16 income year (that is, 66 cents x 5,000 Km’s under the cents per kilometre method).

What are the requirements for a valid log book?

The purpose of the log book and accompanying odometer records is to determine the business use percentage of the vehicle. As a general rule, the higher the business-use percentage, the greater the deductions that may be claimed for work-related car expenses

The requirements for maintaining a log book (income tax) include:

• the log book is valid for five years – after the fifth year, a new log book will need to kept. A new one can be started at any time (for example, if it no longer reflects the business use)
• the log book must be kept for at least a continuous 12 week period – note that the year in which the log book is first kept is referred to as the “log book year”; otherwise it is referred to as a “non-log book year”
• where two or more cars are claimed, each log book must cover the same period.
• the log book must reflect the business use of the vehicle – this can be tricky where there is home to work travel, travel between workplaces, or if the individual’s work is itinerant in nature
• odometer records must also be kept – this is crucial for working out the total distance travelled during the year and also for the relevant period that the log book is kept.

What information must be kept?

Each log book kept must contain:

• when the log book period begins and ends
• the car’s odometer readings at the start and end of the log book period
• the total number of kilometres the car travelled during the log book period
• the number of kilometres travelled for each journey (if two or more journeys are made in a row on the same day, this can be recorded as a single journey).

The following will need to be recorded:

• journey start and finishing times
• odometer readings at the start and end of the journey
• kilometres travelled
• reason for the journey
• the business-use percentage for the log book period.

In the Tax Office’s view, when recording the purpose of the journey, an entry stating “business” or “miscellaneous business” will not be enough. The entry should sufficiently describe the purpose of the journey so that it can be classified as a business journey. Private travel is not required to be shown, but it may help to include in the records to help with calculations.

Do you have trouble keeping records?

The Tax Office has a smartphone App (Search “ATO”) containing a ‘myDeductions’ tool may solve the record keeping dilemma This feature enables individuals to capture receipts for work-related car expenses as well as enter information for a log book. The App also has online calculators, tax rates, news and updates, payment plan estimators and more.

For further information regarding log books, please contact one of our friendly staff members for an obligation free consultation on (03) 9792 2772.