In the 2015–16 Budget the Government announced that there
will be substantial changes to the way in which tax deductions for the
necessary use of a motor vehicle during the gaining of assessable income will be
Currently, there are four methods for calculating work related expenses:
cents per kilometre
12 per cent of original value
one-third of actual expenses
Briefly, the changes are:
the 12 per cent of original value of the vehicle method and the
one third of actual expenses incurred method will no longer be used
two methods may currently be used when more than 5,000 km are driven annually for
work purposes. About three per cent of
total deductions in 2012–13 (the latest available data) were claimed using these
two methods (see below) and
the three existing rates for expenses per kilometre (km),
determined by engine size, will be replaced with one rate of 66 cents per km.
This rate may be updated by the Commissioner for Taxation from time to time
method is currently used when annual distances travelled for work-related
purposes are less than 5,000 km. The current rates per km, by engine capacity
and engine type, are in the following table.
Table 1: Rates
per km for motor vehicle expense claims
Cents per km
1.6 litre or less
0.8 litre or less
1.601 to 2.6 litre
0.801 to 1.3 litre
2.601 litre and over
1.301 litre and over
Claimed revenue gains for this measure total $845 million
over the forward estimates starting 2016–17, including $270 million in the
What’s not changed
Vehicle operators will still be able to:
use the logbook method, if it gives them a better outcome
claim all other expenses incurred in operating a vehicle during
the gaining of assessable income, such as petrol, oil, tyres, registration,
servicing costs, lease charges, interest on a car loan, necessary car parking
expenses and car washing costs and
- use the vehicle for private purposes (but not claim related
costs as a tax deduction).
Will these savings be realised?
On the face of it, these are minor changes to the rules
governing the claiming of work-related vehicle expenses. Would such seemingly
minor changes produce the claimed revenue gain?
In the 2012–13 tax year (latest available data), total work-related
vehicle expenses deductions were approximately $8,062 million.
Of these, approximately $5,046 million was claimed by the per kilometre method.
The estimated savings from this measure are $270 million in
the first year.
Some savings may come from moving claimants from the first
two methods of claiming to the cents per kilometre method. The main savings
will come from the substitution of a single rate only slightly above the
existing lowest rate for the three rates per kilometre.
The amount claimed for the two biggest engine sizes will
reduce by at least 10 cents per kilometre or 13 per cent. Let us assume that
half of the vehicles used for cents per kilometre claims have engine capacity
greater than 1.6 litres. If half of claimants
reduced their claim by 13 per cent the saving just from the existing cents per
kilometre claimants would be nearly $330 million. So the estimate of the saving
appears plausible, even conservative.
The move has been greeted as environmentally positive and
there has been little criticism.
Australian Government, Budget
measures: budget paper no. 2: 2015–16, p. 27.
Australian Taxation Office, Individual
tax return instructions 2014, D1 Work-related car expenses 2014.
CCH, Australian Master Tax Guide 2015, 56th Edition,
January 2015, pp. 926–927.
Figure sourced from Australian Taxation Office, Taxation
Statistics 2012–13, Table 1: Individuals: Selected items, for income years
1978–79 to 2012–13, released April 2015.
Australian Taxation Office (ATO), Income
and Deductions for Business, Cents per Kilometre, ATO website, 13 March
Budget measures: budget paper no. 2: 2015–16, op. cit.
Australian Master Tax Guide 2015, op. cit., p. 919.
Taxation Statistics 2012–13, Table 1: Individuals: Selected items,
for income years 1978–79 to 2012–13, op. cit.
This is probably a very conservative estimate, as the average fuel
consumption of passenger vehicles in 2012 was 11.1 litres per 100 kilometres.
Australian Bureau of Statistics Survey
of motor vehicle use, Cat. no. 9208.0, April 2013, Table 5.
See for example S Rose, ‘Toorak
tractor' cut saves $845m’, Australian Financial Review 13 May
All online articles accessed May 2015.
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