ATO Targeting Motor Vehicle Claims

The ATO have announced that they will be closely examining a number of work related deductions, one of which is the Motor Vehicle claims where taxpayers take advantage of the 68 cents per kilometre for work related travel up to 5,000kms work related car expenses. 

Assistant Commissioner Kath Anderson said over 3.75 million people made a work-related car expense claim in 2016–17, totaling around $8.8 billion. “That’s a lot of money and Australians expect us to ensure people are not over-claiming.” 

“While most people want to do the right thing, we know the rules can be a bit tricky for some and we are seeing a lot of mistakes. We are particularly concerned about taxpayers claiming for things they are not entitled to, like private trips, trips they didn’t make, and car expenses that their employer paid for or reimbursed.” 

So, let’s talk about how to ensure that your motor vehicle claim is ATO audit proof. 

When calculating motor vehicle deductions, you may use two methods; the cents per kilometre method or the logbook method. 

THE METHODS 

Cents Per Km Method 

It’s true that claims of up to 5,000 kilometres under the cents per km method do not require a log book. However, you still need to have done the kilometres as part of your job and be able to show how you calculated your claim, for example by keeping a diary of places you have had to drive to for work, and how often.  

Logbook Method 

If you are claiming more than 5,000 kilometres you will need a log book and records of all of your motor vehicle expenses.  

A log book is required to be kept for at least 12 continuous weeks during the financial year, and that 12-week period needs to be representative of your travel throughout the year (i.e. you cannot choose to keep your log book in a 12 week period where you drove a significant number of work related kms when you drove significantly less during the rest of the year) 

Your logbook must contain: 

• 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 kms the car travelled during the logbook period 
• the number of kms travelled for each journey. If you make two or more journeys in a row on the same day, you can record them as a single journey 
• the odometer readings at the start and end of each subsequent income year your logbook is valid for 
• the business-use percentage for the logbook period 
• the make, model, engine capacity and registration number of the car. 

For each journey, record the: 

• reason for the journey (such as a description of the business reason or whether it was for private use) 
• start and end date of the journey 
• odometer readings at the start and end of the journey 
• kilometers travelled

I know it sounds like a lot of work but the good thing is that the logbook is valid for five years; (however, you may start a new logbook at any time) and there are a lot of Log Book Apps out there to help, for example here’s a link to GeersSullivan’s App https://www.gscpa.com.au/our-app/. 

If your circumstances change, such as a change in the type of work undertaken by your business, you may need a new logbook. 

In additional to your log book you must also have evidence of: 

• your actual fuel and oil costs, or odometer readings on which you estimate your fuel and oil use 
• evidence of all your other car expenses including: 
• repairs and servicing 
• interest 
• lease payments 
• insurance 
• registration 

The ATO has been investigating tax payers that are claiming expenses that they have been reimbursed for, so it is also a good idea to ensure you keep your bank statements so that you can prove you incurred the expense yourself and were not subsequently reimbursed. 

DEDUCTIBLE TRAVEL 

Now that we have determined what you need to be able to make a motor vehicle claim, let’s look at what travel is actually deductible. 

What You Can Claim 

You can claim the cost of travelling: 

• directly between two separate workplaces – for example, when you have a second job (if one of these places isn’t your home) 
• from your normal workplace to an alternative workplace that is not a regular workplace (for example, a client’s premises) while still on duty, and back to your normal workplace or directly home 
• if your home was a base of employment – you’re required to start your work at home then travel to a workplace to continue your work for the same employer 
• if you had shifting places of employment – you regularly work at more than one site each day before returning home 
• from your home to an alternative workplace that is not a regular workplace for work purposes, and then to your normal workplace or directly home. This doesn’t apply where the alternative workplace has become a regular workplace 
• if you need to carry bulky tools or equipment that your employer requires you to use for work which you can’t leave at your workplace – for example, an extension ladder or a cello. 

What You Can’t Claim 

You can’t claim the cost of driving your car between work and home just because: 

• you do minor work-related tasks – for example, picking up the mail on the way to work or home 
• you have to drive between your home and your workplace more than once a day 
• you are on call – for example, you are on stand-by duty and your employer contacts you at home to come into work 
• there is no public transport near where you work 
• you work outside normal business hours – for example, shift work or overtime 
• your home was a place where you ran your own business and you travelled directly to a place of work where you worked for somebody else 
• you do some work at home. 

If you have any questions in relation to your motor vehicle claim please contact our office on (08) 9316 7000. 

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Private Health Insurance Incentives and Disincentives

If you have just been taken off your parent’s Private Health Insurance policy or your child has just been taken off your policy you might be thinking about whether or not it’s worth getting your own, or advising your child to start their own policy.

Private Health Insurance is an individual choice and you need to consider your personal circumstances in deciding if private health insurance is right for you. This article will provide some information of the government incentives and disincentives that currently exist, so that you may be able to make a more educated decision regarding the costs of Private Health Insurance.

Private Health Insurance Rebate

For about 20 years now we have had the Private Health Insurance (PHI) Rebate. The Australian Government provides the PHI Rebate to encourage people to take out and maintain private health insurance. The PHI rebate applies at tiered rates depending on your income level for surcharge purposes. The income levels for surcharge purposes and the applicable rates are as follows:

Note: The family income threshold is increased by $1,500 for each Medicare levy surcharge dependent child after the first child.

You can choose to claim your rebate as a premium reduction which lowers the policy price charged by your insurer, or as a refundable tax offset when you lodge your tax return.

Allowable Age-based Discounts

There is also a new incentive for Australians aged 18-29 years of age, who can be offered discounts of up to 10 per cent off their private hospital insurance premiums.

From 1 April 2019, insurers will be able to offer premium discounts on hospital cover of two per cent for each year that a person is aged under 30 when they first purchase hospital insurance, to a maximum of 10 per cent for Australian’s aged between 18 to 25. The age-based discounts on hospital insurance premiums will be based on a person’s age when they become insured under a policy that offers discounts. The discount rates are shown below:

As a transitional arrangement for existing policy holders, the insurer can offer the discount based on individual’s age when their insurer first introduces age-based discounts for their product. For example, a policyholder who is 28 on 1 April 2019 would receive a 4 per cent discount, even if they first purchased hospital insurance when they were 26 years old.

Once a policy holder has an age-based discount, they will retain that discount rate until they turn 41 if they remain on the same policy. These discounts will then be gradually phased out after a policy holder turns 41.

The provision of discounted products by insurers will be voluntary, however if an insurer chooses to offer discounts on a particular product they must offer the discount on the same basis to all eligible holders of that product, including new and existing policy holders.

Lifetime Health Cover Loading

Lifetime Health Cover (LHC) loading is designed to provide an incentive for people to take out private health insurance before 30 years of age. The way that it works is if you purchase hospital cover after the 1 July following your 31st birthday, you will have to pay the Lifetime Health Cover (LHC) loading on top of your premiums. The loading increases for every year you are aged over 30.

Medicare Levy Surcharge

A disincentive also exists for high income earners, regardless of their age. The Medicare Levy surcharge (MLS) is levied on Australian taxpayers who do not have an appropriate level of private hospital insurance and who earn above a certain income.

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