Motor vehicle deductions for sole traders
In Australia, small businesses can claim motor vehicle tax deductions for vehicles used in the operation of their business. To be eligible, the vehicle must be used primarily for business purposes.
Small businesses can choose between two methods for claiming deductions: the logbook method or the cents per kilometre method.
The logbook method requires detailed records of business usage. You will need to maintain a details vehicle log book for a minimum of 12 consecutive weeks The business use percentage calculated from this 12 weeks can be used for 5 years, as long as your vehicle use purposes and circumstances have not changed. If you have more than one vehicle for business, you will need a separate log book for each vehicle and the 12 week record needs to be from the same period.
The cents per kilometre method has a predetermined rate based on the size of the vehicle's engine, provided by the ATO. This method can only be used by sole traders for “cars” (being those with a load less than one tonne and carry less than 9 passengers). If your business vehicle carries more than these, or you trade under a Company or Trust, you will need to use the “actual cost method” and account for any personal use by recording your business use percentage. In the 2023-2024 tax year, the cents per kilometre rate is 85 cents per kilometre.
It is crucial for small businesses to maintain accurate records and receipts to support their motor vehicle tax deductions claims. Understanding the specific requirements and seeking professional advice can help small businesses maximise their tax deductions within the bounds of Australian tax regulations.