Changed calculation of work-related car expenses

Budget Review 2015–16 Index

Les Nielson

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 calculated. [1]  Currently, there are four methods for calculating work related expenses:

  • cents per kilometre
  • 12 per cent of original value
  • one-third of actual expenses
  • logbook.[2]

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
    • these two methods may currently be used when more than 5,000 km are driven annually for work purposes.[3] About three per cent of total deductions in 2012–13 (the latest available data) were claimed using these two methods (see below)[4] 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
    • this 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

Ordinary engine Rotary engine
Cents per km
1.6 litre or less 0.8 litre or less
65
1.601 to 2.6 litre 0.801 to 1.3 litre
76
2.601 litre and over 1.301 litre and over
77

Source: ATO[5]

Claimed revenue gains for this measure total $845 million over the forward estimates starting 2016–17, including $270 million in the first year.[6]

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).[7]

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.[8] 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.[9]  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.[10]



[1].          Australian Government, Budget measures: budget paper no. 2: 2015–16, p. 27.

[2].          Australian Taxation Office, Individual tax return instructions 2014, D1 Work-related car expenses 2014.

[3].          CCH, Australian Master Tax Guide 2015, 56th Edition, January 2015, pp. 926–927.

[4].          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.

[5].          Australian Taxation Office (ATO), Income and Deductions for Business, Cents per Kilometre, ATO website, 13 March 2015.

[6].          Budget measures: budget paper no. 2: 2015–16, op. cit.

[7].           Australian Master Tax Guide 2015, op. cit., p. 919.

[8].          Taxation Statistics 2012–13, Table 1: Individuals: Selected items, for income years 1978–79 to 2012–13, op. cit.

[9].          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.

[10].       See for example S Rose, ‘Toorak tractor' cut saves $845m’, Australian Financial Review 13 May 2015.

 

All online articles accessed May 2015. 

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