Car claims to be closely examined by ATO in 2017/18

Work-related car expenses will be closely scrutinised by the ATO for individuals claiming in the 2017/18 income year. A recent media release has highlighted the ATO's concerns that taxpayers are either over claiming or incorrectly calculating car expenses. This concern will be expressed by additional audit resources being used for the upcoming tax lodgment season.

It is the ATO's intention to utilise improved technological enhancements along with data analytics to target unusually high claims based on similar occupational and income models.

The focus of the upcoming ATO scrutiny will be based on three "golden rules" they have identified.

                (1) The taxpayer must have spent the money themselves and was not reimbursed.

                (2) The car claim must be directly related to earning assessable income.

                (3) There must a record to prove it.

This year it is important to ensure that your clients are fully aware of their substantiation requirements when making a car expense claim.

Cents per kilometres method

A deduction is calculated at a prescribed rate and is allowable for up to 5,000 km of income-producing use of the car. The maximum cents per kilometre claim can be made even if more than 5,000 business use kilometres. Under this method, full substantiation is not required, however, the deduction must be calculated based on a reasonable estimate of income-producing kilometres.

"Log book" method

A deduction for a percentage of the total car expenses is allowed as long as odometer records are kept. The odometer records must be kept every five years, and containing details of all business trips for a period of 12 weeks. For the 2017/18 income year, a log book will only be valid if it commences from 1 July 2013.

All expenses relating to the car must be kept in order to substantiate the log book claim, with the exception of fuel and oil costs. Fuel and oil costs can be substantiated by reference to odometer records, using a reliable estimate for distance and bowser price.

Information sourced using CCH iknow