Maximise Your Tax Deductions: A Builder’s Guide to Vehicle Claims

As featured in our Top 10 Tax Tips for Builders and Tradies, one of the first things you end up buying as a builder or tradie is a vehicle. Because they’re important tools of trade, you are well within your rights to claim vehicles as tax deductions – both the initial purchase and the ongoing costs of running a vehicle.

That said, it’s important to make sure you know how to claim so you get the best possible deductions and avoid having the ATO on your case.

Purchasing a vehicle:

• The amount you claim is proportionate to the mix between business and personal use.
• At the time of writing, based on instant asset write off rules, you can claim the whole amount of a purchase in one tax year if it is below $20K.
• For purchases over $20K, you claim the car over its effective life.
• You can only depreciate up to $68K for cars, however you can depreciate the full amount for ‘other’ commercial other vehicles.
• Don’t forget to claim your GST credits.
• Luxury Car Tax (LCT) kicks in at $76,950, or $89,332 for fuel-efficient vehicles, and is charged at 33c for every dollar over the threshold. You can avoid paying Luxury Car Tax if your vehicle is classified as a Commercial Vehicle where the principle purpose is transporting goods and not passengers. Check with your accountant before purchasing a vehicle to see if LCT applies.

*NB: ‘Other’ commercial vehicles are those designed to carry loads of one tonne or more. There are a number of factors that affect the definition of commercial vehicle – please consult your accountant for advice regarding your specific circumstances.

Example: Purchasing a Vehicle

Toyota Hilux SR
Driveaway Price: $50,974
Depreciated over 4 years

Example: Claiming Vehicle Running Costs

The ATO provides two options for claiming running costs – the “cents per km” method and the Logbook* method. Under the cents per km method, a flat rate of 85 cents per KM can be claimed, with a cap at 5,000 km per year. This method is only available to Sole Traders. In many cases, Builders and Tradies clock up more kms than this, and if you’re trading as a company or trust, the Logbook/Actual cost method is the method that must be used.

Assumptions:

• $2 per litre for fuel
• travel approx. 25,000kms per year
• a valid logbook establishes work usage at 85%

*Note: The Logbook method requires you to maintain a logbook for a minimum of 12 weeks every 5 years for each vehicle to demonstrate the vehicle is being used for business purposes.