Wouldn’t it be nice if you could get the government to chip in for your next car loan repayment, or if you own your car outright, give you back a stack of cash each year to thank you for owning a nice car? But that isn’t the kind of government we are dealing with, right? I mean we aren’t suffering under the iron tyranny of George Orwell’s ever-watchful Big Brother but government’s TAKE money from you they don’t GIVE it to you… right?
The answer to that statement is really up to you. You need to decide whether you are willing to get educated and take the power back!
Ok. So let’s get down to business.
Your car is a depreciating asset. Each year the value of the car decreases, generally, this occurs at a greater rate in the beginning and then plateaus off near the end as the value of your car decreases. You can take advantage of that depreciation!
However, first we need to establish that the car is used for work purposes.
Here are some points on when this would be the case. If you travel…
Directly between two different workplaces i.e. a second job.
Between normal workplace and an alternative workplace and back or directly home.
If you start your day working at home then travel to work to continue working for the same employer and vice versa.
If you had shifting places of employment – you work in more than one location each day before returning home
From your home to an alternative workplace for work purposes (for a meeting, coaching, etc.), and then to your normal workplace or directly home.
If you needed to carry bulky tools or equipment required for your work and couldn’t leave them at your workplace – for example, construction tools or a keyboard.
Ok so now you are equipped with the knowledge you need to be able to identify WHEN your trips are work-related. So, what’s next?
Now you have the exciting privilege of completing a logbook!
I can tell you just pulled the same kind of smushy face that’s caused by biting into a warm lemon…
No one likes doing a logbook… Once again. Power through it. Here is where 90% of people stop. They pick up the knowledge and don’t commit to action and so keep putting hard-earned dollars into the tax man’s pocket.
Here’s what the ATO says you have to record in your logbook for a period of 12 continuous weeks.
“when the logbook period begins and ends
the car’s odometer readings at the start and end of the logbook period
the total number of kilometers the car traveled during the logbook period
the number of kilometers traveled for each journey recorded in the logbook (if you made two or more journeys in a row on the same day, you can record them as a single journey). You will need to record the
start and finishing times of the journey
odometer readings at the start and end of the journey
reason for the journey.”
A great idea would be to use a Logbook app. This allows you to simply press one button when it’s a business trip, press the other when it isn’t.
The great thing is a log book lasts for 5 years!
Let’s have a look at the payoff for our case study client Bob who decides to get the maximum deductions for his car.
Bob has a new Audi worth $55,000 and we find, using the logbook that this work use for the car is 60% and his personal use is 40%. His annual running costs for his car including insurance, petrol, servicing etc. are $8,000. Bob’s marginal tax rate is 42%. Our depreciation rate on the car is 25%. So, what is the result? What does Bob get back?
Tax return improvement = ((($55,000*25%) for the depreciation) + ($8000 for the running costs)) x (60% as this is how much he uses the vehicle for work) X (42% his marginal tax rate)
Tax return improvement = $5,481! That’s a great result!
That is in just one year! Imagine what a good tax habit could grow into overtime? Imagine what would happen if you invested that extra money? What if you popped it into super and could retire years earlier than you expected? The options are limitless.
It is worth noting that there is a limit on the value that you can use in your depreciation of your car. It is set at the Luxury Car Limit which for 2016-17 is $57,581. If your car is more expensive than this, you can still depreciate it. You just can’t do it for the full value of the car.
*Also I recommend running your trips by your accountant first. That way you can be confident you are getting the most out of your logbook the right way!
Please note that your personal financial circumstances have not been taken into consideration when putting together this article and so it should not be taken as personal advice.