When claiming for work-related car expenses, many people miss out on maximising their claim due to inadequate record keeping. Also, failing to maintain a valid vehicle log book can cost dearly if you are audited by the Australian Tax Office (ATO).
A vehicle log book is an important piece of tax substantiation for people who use their car in the course of performing their duties. Most people will be familiar with the two main instances where a vehicle log book is required. These include:
1. FBT Compliance – Where you, or an associate, have been provided with a car by your employer and are required to maintain a log book for fringe benefit tax (FBT) purposes.
2. Income Tax – Where you are claiming a deduction in your personal tax return for work-related car expenses using the log book method.
The log book method does require receipts and some diligence! To help, you can download our free vehicle log book template.
Business use percentage of the vehicle
The purpose of the vehicle log book and accompanying odometer records is to determine the business use percentage of the vehicle.
The business-use percentage broadly is the business kilometres for the year divided by the total kilometres travelled (obtained from odometer records). But all relevant matters should be taken into account, including log book, odometer and any other records kept, and a variation in the pattern of business use throughout the year due to things like holidays or seasonal factors
As a general rule, the higher the business-use percentage:
- under FBT — the lesser the amount of FBT payable for car benefits
- under income tax — the greater the deductions that may be claimed for work-related car expenses
What are the requirements for a valid log book?
The requirements for maintaining a log book for income tax and FBT purposes are mostly the same, although there are some small differences.
The main difference is that an FBT log book applies to the relevant FBT year (that is, ending March 31) while an income tax log book applies naturally to an income year (that is, ending June 30).
Things to be mindful of when using a log book include:
- The log book is valid for five years
- After the fifth year, a new log book will need to be kept. A new one can be started at any time (for example, if it no longer reflects the business use).
- The log book must be kept for at least a continuous 12 week period
- That period needs to be representative of your usual travel throughout the year.
- For two or more cars
- If you use the log book method for income tax for multiple cars, the log book for each car must cover the same period.
- For FBT, one log book must be maintained for each car where multiple cars are provided by an employer.
- The log book must reflect the business use of the vehicle
- This can be tricky where there is home to work travel, travel between workplaces, or if the individual’s work is itinerant in nature. This log book template will help.
- Odometer records must also be kept
- This is crucial for working out the total distance travelled during the year and also for the relevant period that the log book is kept. Generally, most odometer records will be kept as part of the log book, showing the starting and closing odometer records for the relevant period.
What information must be kept in your log book?
Each log book kept must contain:
- When the log book period begins and ends
- The car’s odometer readings at the start and end of the log book period
- The odometer readings at the start and end of each income year you use the logbook method
- The total number of kilometres the car travelled during the log book period
- Details for each journey (if two or more journeys are made in a row on the same day, this can be recorded as a single journey) showing:
- date journey started and finished
- odometer readings at the start and end of the journey
- kilometres travelled
- reason for the journey – In the Tax Office’s view, an entry stating “business” or “miscellaneous business” will not be enough. The entry should sufficiently describe the purpose of the journey so that it can be classified as a business journey. Private travel is not required to be shown, but it may help to include in the records to help with calculations.
Get a log book
You can buy pre-printed vehicle log books from stationery suppliers, create your own, or use this one that we have created for you.
There’s an app
The ATO’s smartphone app containing the myDeductions tool may solve the record keeping dilemma, as it enables users to capture receipts for work-related car expenses as well as to enter information for a log book.
Get more information and download the app here: myDeductions
Although the tool is appropriate for people wishing to claim work-related car expenses, the ATO has not indicated whether it is appropriate for FBT purposes.There are other third party apps that may satisfy the requirements under FBT law but you should satisfy yourself that any app you choose fulfils the requirements under the tax law (check with us if you’re not sure).
Find more information and examples on the ATO links below.
Contact us to make sure you have your vehicle log book in order.
(This article was originally published 28 June, 2016)