How to claim your car in your 2021-22 tax return

how-to-claim-your-car-in-your-2021-22-tax-return

Susannah Guthrie

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If you’ve purchased a new car this financial year and are looking to claim it as a business expense in your 2021-2022 financial year, some things may have changed since you last lodged a tax return.

While claiming your vehicle as a tax write-off is more or less a similar process to previous years, some of the key parameters have changed.

In case you need a refresh, here are some crucial things to know about claiming a car as a business expense for the 2021/2022 financial year. 



If you’re an employee, there are two ways to claim business use on your car.

“If you’re an employee you can claim the business use of your car using the cents per kilometre method (which gives you 72 cents per kilometre for this financial year), but you can only claim that for up to 5000km,” says Mark Chapman, H&R Block’s Director of Tax Communications.

“If you go beyond 5000km you either have to cap the claim there, or you can use the logbook method, which is generally the preferred method in terms of the size of the deduction. However, there are considerable record-keeping requirements involved.

“You have to keep a logbook for 12 weeks and you have hold onto that logbook for five years, plus you have to keep the individual receipts for your various costs – including fuel, servicing and insurance.”



You can’t claim your commute.

Contrary to popular belief, your daily commute does not count as “business use”. Instead, business use can include things like driving to and from suppliers, visiting a client, driving to the bank or post office to carry out business-related activities or driving to clients or suppliers to view product.

The key criteria for these trips is that they’re conducted from the office and back to the office (but if you work from home, this can count as your office).

Unplanned trips to see clients or meet suppliers that require you to travel straight from home to the work-related location can also qualify, as long as they weren’t pre-organised. Tricky, right? That’s why keeping a log book and consulting with an accountant can help you work through the grey areas.



If you’re a business or sole trader, you claim under ‘temporary full expensing’.

For the 2021–22 financial year, something called ‘temporary full expensing’ replaced the instant asset write-off.

Temporary full expensing is essentially just an expanded version of the instant asset write-off that shortens the ‘normal’ timeline an asset would be depreciated over, and allows you to realise tax benefits faster.

It’s an expansion on the instant asset write-off because it changes the eligibility criteria from businesses with an aggregated turnover of less than $500 million to businesses with an aggregated turnover of less than $5 billion – meaning a far larger pool of businesses are eligible. 



It also removes the limit on how much an eligible asset can cost. Previously, you could only claim assets up to $150,000. 

“Temporary full expensing isn’t available to employees, it’s only available to sole traders or businesses,” Mr Chapman says.

You’ll need receipts and records.

Regardless of which method you use to claim your car on tax, it pays to keep a hold of all your receipts, says Elinor Kasapidis, Senior Manager of Tax Policy at CPA Australia.



“With the ATO checking work-related expense claims and business record keeping, it’s best to keep details of the kilometres travelled for business and private use, receipts for fuel, oil, repairs, servicing and insurance cover, loan or lease documents, tax invoices, registration papers and details of how you calculated your claim. You may need further records if you rely on the logbook method,” Ms Kasapidis explains.

Claiming under the temporary full expensing scheme doesn’t change this.

“What is important to remember though is that record-keeping obligations – such as records to calculate business and private use, or to claim running expenses – didn’t go away because of temporary full expensing. So make sure to maintain good records throughout the life of the vehicle and for when you sell,” Ms Kasapidis cautions.

You need to have the car in your possession by 30 June 2022. 

The cut-off for having your asset in use and eligible to be claimed for the 2021-22 financial year is 11.59pm on 30 June 2022 – and yes, that’s a hard deadline

That means even if you’ve pre-paid for your car, it can’t be included in your tax return until it’s actually in use, so beware of delivery delays.  

“If you’re thinking you want to claim your purchase in this year’s tax return, be sure you can take delivery [before the cut-off date for this financial year],” Elinor Kasapidis, Senior Manager of Tax Policy at CPA Australia says. 



“It’s a really strict deadline. So if you drove the car off the lot on the 30th of June this year, you could claim up to the car limit in your tax return. But if you drive it off the lot on July 1st, you’d have to claim it in your 2023 return, meaning you’d have to wait 12 months to claim,” Ms Kasapidis says.

There are some limits on how much you can claim.

While there is no limit on how much your asset costs in order to access temporary full expensing, there is a limit on what proportion of that asset’s cost you can deduct. 

Under the temporary full expensing scheme, something called the car cost limit applies to passenger vehicles designed to carry a load of less than one tonne and fewer than nine passengers. 

The car cost limit for the 2021/22 financial year is $60,733, which means that no matter what you paid for your car, you can only claim the business-use percentage of your car up to that $60,733 limit.

However, if you’re buying a vehicle that carries more than nine passengers or over a tonne, that car cost limit is waived and you can claim the full amount of the car (excluding GST). 

In layman’s terms: a sole trader who buys a new passenger car for $70,000 drive-away and uses it exclusively for work, would be able to claim 100 per cent business use up to the car cost limit of $60,733 (for the 2021/22 financial year). 



As such, $60,733 would be deducted against the business owner’s annual income and they would only pay tax on what remains.

But if a sole trader was to buy a ute capable of carrying more than one tonne for $80,000 and use it exclusively for work, they could claim the full $80,000 as a deduction.

You can claim both new and used cars.

If you want to claim a second-hand car under temporary full expensing, you just have to ensure your business’s aggregated turnover is below $50 million and the used car was first held by you at or after 7.30pm AEDT on October 6, 2020.

Much like a new car, a used car also has to be installed and ready for use by June 30, 2022 in order to be included in your 2021-22 tax return. 

You can claim improvements to your car, too.

According to the ATO, under temporary full expensing, “you can also immediately deduct the business portion of the costs of improvements incurred between 7.30pm AEDT on 6 October 2020 and 30 June 2023 for eligible assets and existing assets”.

“Improvements need to be business-related, unless you’re a company in which case you can claim the whole lot, but if it’s private-related you need to charge fringe benefits tax on that,” Mr Chapman says.



“[To be eligible] it needs to be a capital expense, so something such as roof racks or different tyres, you simply add it to the cost of the vehicle and deduct the entire amount.”

If a company claims a car under temporary full expensing, it can typically claim the full cost of the car (up to the car cost limit if it applies) even if it’s used privately.

The private use portion of the car can then be taken care of via the fringe benefits tax.

However, a sole trader would need to keep a record of the business and personal use split of the car using a logbook or diary.

‘Temporary full expensing’ won’t last forever.

Even if you’ve missed the deadline for this financial year, don’t despair – you might still be able to access the temporary full expensing scheme before it ends on 30 June 2023. 

After the scheme ends on 30 June 2023, depreciation rules may not be so generous.



“What is scheduled to happen is that we will go back to the instant asset write-off, but it will have a threshold limit of $1000 for assets from 30 June 2023. Having said that, the government might look at that and extend it,” Mr Chapman explains.

Claiming your car in your tax return doesn’t mean you get the full cost back in your pocket.

It may seem obvious, but “writing something off” on tax doesn’t mean you get all your money back – it simply means you reduce your taxable income.

“If you’ve got a business that’s turned over $100,000 and you’ve bought $30,000 vehicle – you offset that purchase against your income and you only pay tax on the remaining $70,000,” Mr Chapman says.

NOTE: Nothing in this article is implied as financial or tax advice. You should seek specific advice from your accountant to determine eligibility and applicability of your business and financial circumstances.

Susannah Guthrie

Susannah Guthrie has been a journalist since she was 18, and has spent the last two years writing about cars for Drive, CarAdvice, CarSales and as a motoring columnist for several in-flight and hotel magazines. Susannah’s background is news journalism, followed by several years spent in celebrity journalism, entertainment journalism and fashion magazines and a brief stint hosting a travel TV show for Channel Ten. She joined Drive in 2020 after spending a year and a half at the helm of Harper’s BAZAAR and ELLE’s online platforms. Susannah holds a Bachelor in Media and Communications from the University of Melbourne and cut her teeth as an intern for Time Inc in New York City. She has also completed a television presenting course with the National Institute of Dramatic Art. She lives in Melbourne with her husband and her one-year-old son who, despite her best efforts, does not yet enjoy a good road trip.

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