When claiming for work-related car expenses, many taxpayers miss out on maximising their claim due to inadequate record keeping. But also, failing to maintain a valid car log book can cost taxpayers dearly in an ATO audit. The car log book is an important piece of tax substantiation for those who use their vehicle in the course of performing their duties. There are two main instances where a car log book is required:
- where the individual is claiming a deduction in their personal tax return for work-related car expenses using the log book method, or
- where the individual or their associate has been provided with a car by their employer and is required to maintain a log for fringe benefits tax (FBT) purposes.
The purpose of the log book and accompanying odometer records is to determine the business-use percentage of the vehicle. As a general rule, the higher the business-use percentage:
- under income tax — the greater the deductions that may be claimed for work-related car expenses
- under FBT — the lesser the amount of FBT payable for car benefits. The requirements for maintaining a log book for income tax and FBT purposes are mostly identical, although there are some small differences. The main one 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 – note that the year in which the log book is first kept is referred to as the “log book year”; otherwise it is referred to as a “non-log book year”
- for two or more cars – for income tax, 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
- 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.