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Disclaimer: All information in this guide is for information purposes. I am not an accountant nor am I a tax professional. Before shouting YOLO and applying anything presented here, check with your accountant.

The reason I am putting this up here is that until recently I knew next to nothing about how to claim tax deductions. It took a lot of time and effort to learn, mostly because the information available online is usually incomplete and/or difficult to understand. I hope this guide helps other drivers maximise the hire car dollars that stays in their pockets.

In my opinion by applying everything in this guide, a smart driver should end up paying very little GST to the ATO and little to no income tax (unless they are grossing well over $45,000 per year), and furthermore should be able to smoothly transition to a shiny new car every 2-4 years.

What we all want:
Rightfully claim GST credit on vehicle purchases as well as depreciation, loan interest, and other costs. Pay much less income tax or none at all. Less money to The Man, more in your pocket ? ? ? What's not to love? But first - try figuring out the complicated ATO rules and regulations - good luck with that! :eek::eek::eek:

Not to worry! ? Your friendly neighbourhood Subie-man has done his homework and presents to all Australian hire car drivers this definitive guide on how to take full advantage of car deduction entitlements. I will try to keep it simple but cover everything. Reference links are included throughout the guide as well as at the bottom. All of this information comes directly from the ATO website.

I recently wrote about my rideshare accounting spreadsheet in the Melbourne forum, which you can download here. Use it to plug in your expenses and work out what you need to submit to the ATO for both BAS and EOFY tax return.

Covered in this guide are the following:
  • Claiming GST credit on a car purchase
  • Claiming depreciation including:
    • general and simplified depreciation
    • prime cost and diminishing value
    • instant asset writeoff
    • When you sell or trade in your car
  • Claiming any and all other car expenses
  • Claiming other expenses

First some basic rules to follow always, at all times (always):
  • The car tax limit for depreciation (the maximum you can claim) is $57,581. *reference
  • The GST credit limit for cars (the maximum you can claim) is $5,234. *reference
  • When claiming an income tax deduction the amount must exclude GST. Claim GST credits in your BAS.
  • For any tax deduction or GST credit you must apply the correct percentage of your business use

Claiming GST credit on a car purchase
When you purchase a vehicle you can claim a GST credit, up to the maximum of $5,234 . You claim this credit when you submit BAS. The credit stays on your ATO account over subsequent BAS periods - so when you buy a new car for $44,000, you can claim up to $4,000 GST credit, resulting in you not having to pay GST until your total GST debits exceed that $4,000 credit - which should take you a year or more. It's important to claim the amount equal to the percentage of your hire car business use - for example if 50% of your kms driven is hire car work then in the example above you can claim $2,000.

Other GST car credits
You can claim GST credits for all GST paid for your hire car-related car expenses (according to your business use percentage) including
  • Car purchase
  • Fuel
  • Car Insurance (including excess payments)
  • Maintenance & repairs (including purchases like tyres, spare parts etc)
  • Cleaning
  • Tolls (where applicable)
  • Parking
  • Mobile phone bills
  • In-car entertainment (Spotify)
  • Home office expenses

**Important note:
In order to claim anything below this paragraph, you must use the logbook method (and actually keep a logbook). Otherwise you must use the cents per km method and disregard everything below this paragraph. The cents/km rule is easy to use and can be better for part time drivers. In the cents/km method you can claim 0.68 cents per km up to a maximum of 5000km per year, or $3400 - but you can't claim depreciation, insurance, loan interest, fuel, maintenance etc. If you drive your hire car more than 5000km per year, then keep a log book and claim all possible deductions, otherwise you are robbing yourself of your own hard-earned cash :eek::eek::eek:

Claiming Depreciation (General vs simplified):
There are 2 pathways to claim depreciation: General depreciation and Simplified Depreciation. You can use either. Both are described below, which one you decide to use should depend on which you calculate is best for you.

General Depreciation *reference
Your vehicle depreciation is tax deductible according to general depreciation rules. You may claim a vehicle cost (according to business use percentage and not including GST) up to a maximum of $57,581.

There are 2 methods for general depreciation: Prime Cost and Diminishing Value. Prime Cost divides the total cost evenly over 8 years (8 years being the ATO's defined effective life for hire cars including UberX). Diminishing Value has the highest depreciation in the first year, with the depreciation amount being less each year. *reference

Which method to use depends on your situation. If you have just bought a new car, use Diminishing Value to get the highest deduction straight away. If you are driving a car you have owned for several years use Prime Cost, because you will be able to claim a higher deduction than if you used Diminishing value. If you start using one method for a car, you must continue using that method for that car in subsequent years. Confused? Here is an example comparing both methods, which I prepared using the ATO's Asset depreciation tool for a $40,000 (excl GST) car, assuming 100% use as a hire car:

Prime Cost
Diminishing Value
Screen Shot 2019-07-13 at 6.43.30 pm.png
Screen Shot 2019-07-13 at 6.42.38 pm.png

Simplified Depreciation *reference
As with general depreciation, You may claim a vehicle cost (according to business use percentage and not including GST) up to a maximum of $57,581. Simplified depreciation has the following provisions:

Instant asset write off - For any item including cars purchased from now until 30 July 2020, you can claim 100% of the cost as an instant write-off deduction, if the value (excluding GST) is $30,000 or less. *reference

Business pool depreciation - If your car cost more than $30,000, then according to simplified depreciation you can add it to your small business pool, claim 15% of the value on the current year and 30% of the remaining balance each subsequent year. Let's say you buy a $44,000 car which is used 100% as a hire car. You claim $4000 as a GST credit and $40,000 remains. According to simplified depreciation you can claim depreciation as follows:

Income yearOpening adjustable valuedecline in value (deductible)
2019-2020$40,00015% - $6,000
2020-2021$34,00030% - $10,200
2021-2022$23,80030% - $7,140
2022-2023$16,60030% - $4,998
2023-2024$11,60230% - $3,480
2024-2025$8,12230% - $2,436
2025-2026$5,68630% - $1,705

When you sell or trade in your car
When you finally sell or trade in your car, part or all of the sale amount will count as income, depending on how much of its initial value you have claimed as depreciation. If you sell your car for more than what you have reported its remaining value to be, then the difference between those two amounts counts as income. Any GST which is included in the sale price of the car also counts as a GST debit.

For example let's say you bought a car for $44,000 and use it 100% for hire car work. You claim $4,000 GST credit and claim deductions using simplified depreciation as in the example above. After four years you sell the car for $15,000 including GST. You now owe $1363 in GST for the sale. In addition, you have already claimed $28,338 in depreciation deductions for this car and according to the ATO the remaining value is $11,602. The difference between $15,000 and $11,602 ($3,398) counts as profit which must be added to your taxable income.

If you have traded in the car for a new one which cost exactly the same ($44,000), with a trade in value of $15,000, then calculate $1,363 as a GST debit, $4,000 as a GST credit which will result in a $2,637 GST credit. Next, deduct $3,398 from the depreciable value of the new car, making your opening adjustable value for the new car $36,602. From there apply the general or simple depreciation method of your choosing.

Claiming any and all other car expenses
As long as you maintain the logbook method, you can claim the business use percentage of these deductions in your tax return (exclude GST):
  • Interest paid on your car loan (get this from your loan provider's statement of account)
  • Fuel and/or charging costs for EVs or PHEVs
  • Car Insurance (including excess payments in case of smash repairs)
  • Vehicle registration
  • Maintenance (including purchases like tyres, spare parts etc)
  • Cleaning (including cleaning products)
  • Tolls
  • Parking
  • Mobile phone bills
  • In-car entertainment (Spotify)

Other expenses you can claim
  • Cost of managing tax affairs (accountant or Airtax)
  • Driver/car accreditation expenses including 100% of:
    • Commercial vehicle registration
    • Driver accreditation fees
    • Vehicle inspection costs such as Redbook
    • Driver medical checkup costs
  • Home office expenses including (small & reasonable) percentages of
    • Rent or mortgage interest
    • electricity, gas, water bills
    • Home Internet
    • Personal computer (claim GST on purchase and depreciation)
*Note: I personally claim 10% of my home bills as home office expense. Be careful claiming any more than that or your return might get flagged and/or audited which isn't good.

References:
 
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