Car claims to be closely examined by ATO in 2017-18
Recently, the ATO has issued a point of emphasis for the upcoming tax lodgement season.
They will be employing additional audit resources along with updated data analytics to scrutinise large car expense claims.
Please be advised that in order to make a claim under D1 car expenses in your tax return, you need to adhere to what the ATO describes as the three “golden rules”:
- You must have spent the money yourself and not reimbursed by your employer.
- The car claim must be directly related to earning your assessable income.
- You must have correct records to prove it.
“The ATO will be employing additional audit resources along with updated data analytics to scrutinise large car expense claims.”
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.
“To claim under the D1 car-expenses category, you must have spent the money yourself (not been reimbursed), the travel must be directly related to earning income, and you must have correct records.”
“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.
If you require any further information in relation to this year’s car claim, including the specific substantiation requirements, please contact our office and we can walk through them with you.
Our office would be pleased to assist you to ensure that your records regarding this year’s claim are acceptable based on the ATO guidelines.
About the author
Marius Fourie - Director & Business Advisor
As Director and Business Advisor, Marius uses his accounting expertise and empathetic skills to work directly with business owners and help them feel at ease with their finances.
Marius saw a common need in clients that just wasn’t being met by accounting providers.
That need was for clear, open communication and streamlined accounting services that didn’t come padded out with any unnecessary features.
Business owners just don’t have time to compare different accounting firms to see which one has the best packages with the best inclusions (many of which they would pay for but never use).
Key Takeaways
Claiming car-expense deductions is under greater ATO scrutiny this year.
Given the volume of claims in 2017–18, the ATO has committed additional resources and uses data analytics to target unusually large or dubious claims.
Only expenses genuinely incurred by the taxpayer — not reimbursed — are deductible.
You must have paid the costs yourself; employer reimbursements or salary-sacrifice/novated vehicle arrangements usually disqualify the deduction.
The claim must directly relate to earning income — not commuting or private use.
Travel must be work-related and necessary for duties (e.g. between workplaces, client visits); usual home-to-work commuting doesn’t count.
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Frequently Asked Questions
Why is the ATO scrutinising car claims for 2017-18?
Because in the 2017–18 income year over 3.6 million people claimed work-related car expenses — totalling more than A$7.2 billion. This high volume of claims has triggered greater audit attention to ensure compliance.
What are the “golden rules” for making a valid car-expense claim?
To claim, you must (1) have personally incurred the expense (not been reimbursed by employer), (2) show that the travel was directly related to earning assessable income, and (3) hold accurate records (e.g. logbook, receipts or evidence) to substantiate the claim.
What methods can individuals use to calculate car expense deductions?
You can claim via either the “cents-per-kilometre” method (up to 5,000 business kilometres per year) or the “logbook method” (where you record a representative 12-week period and apply that business-use percentage to all car running costs).
Are all trips eligible — for example, commuting from home to work?
No. Regular commuting between home and your main place of employment is generally not deductible. Only travel that is necessary in the course of performing your job (e.g. between work sites, transporting bulky tools) qualifies.
What happens if a claim is flagged as questionable or unsupported?
The ATO may request substantiation (logbook, odometer readings, trip records) and could disallow the deduction or adjust it. In cases of deliberate over-claiming, penalties may also apply.
Will the ATO closely examine car expense claims for 2017–18, and what should I do?
Yes — the ATO flagged that car claims were a focus for compliance activity in 2017–18, meaning they were more likely to review and question these deductions. If I claim car expenses, I need to keep detailed records (like kilometres travelled, purpose of trips, and logbooks) to support my work-related claims and avoid adjustments or penalties.
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