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ATO Mileage Reimbursement Guide: Everything You Need to Know

Welcome to our comprehensive guide on mileage reimbursement and deductions in Australia. In this article, we will walk you through the ATO rules and regulations for claiming business driving expenses. Whether you are an employee or a sole trader, we’ve got you covered with all the information you need. So let’s dive in and discover how you can maximize your reimbursements and deductions!

Mileage Reimbursement Rules

Depending on your employment situation, there are different methods for receiving compensation for your business driving. Let’s take a closer look at the key rules set by the ATO and how to choose the best method for your needs.

The ATO Cents Per Km Rate

The ATO sets the cents per km rate each year, which represents the reimbursement amount for business-related kilometers. The recently confirmed rate for the 2023/2024 tax year is $0.85 per business-related kilometer. This rate is designed to cover all the expenses associated with owning and operating your vehicle for business purposes. Make sure to stay updated on the latest cents per km rate to ensure accurate reimbursement.

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Eligible Vehicles

The ATO defines eligible vehicles as motor vehicles (excluding motorcycles and similar vehicles) designed to carry a load of less than one tonne and fewer than nine passengers. However, there may be exceptions for certain vehicles that do not fall within this definition. We will discuss these exceptions further in the following sections.

Work-Related Travel

The ATO considers various types of work-related driving as eligible for reimbursement. Some examples include:

  • Attending meetings or conferences away from your usual workplace
  • Collecting supplies or delivering items
  • Traveling directly between two separate places of employment
  • Traveling from your usual workplace or home to an alternative workplace
  • Conducting itinerant work, where your job requires you to work at multiple locations each day

Please note that commuting from home to work is generally not claimable, with a few limited exceptions.

For Employees

As an employee in Australia, your employer may provide a car allowance or reimburse you on a cents per km basis for work-related car expenses. Here are the key points you need to know:

Vehicle Types

Regardless of the type of vehicle you use for work, your employer can select a reimbursement scheme. However, it’s essential to understand that the ATO has different rules for cars and other motor vehicles if you plan to deduct your motor vehicle expenses.

Cents Per Km

Your employer may choose to use the ATO mileage rate for business travel, simplifying the reimbursement process. With this method, you only need to record your business-related kilometers, and additional expenses such as parking costs and road tolls may need to be documented. As long as your total reimbursement amount is equal to or less than the prescribed cents per km rate for the year, it will not be taxed as income.

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Car Allowance

Alternatively, your employer might offer you a car allowance to cover your need for a company car. This allowance is paid upfront and is considered a benefit, subject to taxation. It’s important to note that the car allowance does not replace reimbursement for work-related car expenses. You can still claim these expenses on your annual tax return.

If your employer doesn’t provide a reimbursement scheme, you can claim deductions from the ATO, even if they offer a car allowance. We will discuss this further in the upcoming sections.

For Sole Traders

As a self-employed individual with work-related car expenses, you can claim deductions on your annual tax return. Let’s explore the three methods for calculating your claim:

The ATO Cents Per Km Method

The simplest method for claiming business-related driving expenses is by using the ATO cents per km rate, set annually. You need to keep track of the kilometers driven throughout the year and multiply them by the corresponding rate. Please note that you can claim up to 5000 km per year using this method.

The Logbook Method

The logbook method allows you to claim your business travel expenses without any upper kilometer limit, as long as they are business-related. This method requires more involvement, but it can be beneficial for sole traders and partnerships. To determine the amount you can claim:

  1. Keep a logbook of all your journeys.
  2. Calculate the percentage of business use for your car.
  3. Keep track of your total work-related car expenses for the year.

With the logbook method, you can keep a logbook for 12 consecutive weeks and use it as proof of your business driving for up to five years, provided your driving habits remain consistent. You can claim the percentage of expenses that corresponds to the percentage of kilometers driven for business purposes throughout the year.

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The Actual Expense Method

The actual expenses method is suitable for companies, trusts, or sole traders and partnerships claiming business-related kilometers for vehicles other than cars. To use this method:

  1. Keep receipts of all expenses related to your vehicle.
  2. Maintain an accurate logbook of your driving at all times, including kilometers driven.

The actual expense method requires diligent record-keeping and documentation.

For a more detailed explanation of each method, please refer to our dedicated guide for sole traders.

How to Calculate the Percentage of Business-Related Driving

If you use your car for both business and private purposes, it’s crucial to determine the percentage of business use. To calculate the business use percentage:

  1. Divide the number of kilometers driven for business purposes by the total number of kilometers driven.
  2. Multiply the result by 100 to get the percentage.

For example, if you drove a total of 6000 kilometers, with 4500 kilometers being work-related, your calculation would be:

4500 business km / 6000 total km = 0.75
0.75 x 100 = 75%

In this example, the car was driven for business purposes 75% of the time.

Keeping Compliant Logs for Your Reimbursement

The logs and records you need to keep depend on your employment situation:

  • As an employee, your employer will provide guidance on the specific details you need to log for your driving, depending on the reimbursement method and their bookkeeping requirements.
  • As a sole trader, the log and record-keeping requirements differ based on the method you use for deducting work-related car expenses.

For instance:

  • If you use the cents per km method, detailed logs are not necessary, but you should be able to demonstrate how you calculated your business use and deductions if required by the ATO.
  • If you use the logbook method, you must maintain a comprehensive logbook, including trip details, purpose, date, odometer readings, and keep receipts for all vehicle expenses. Refer to our dedicated logbook requirements for tax to learn more.
  • The actual expense method requires you to keep track of all kilometers driven and retain receipts for all car expenses.
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Remember to keep your logs and receipts for five years to ensure compliance.

FAQs

Q: Can I claim mileage reimbursement for commuting from home to work?
A: In general, commuting from home to work is not claimable unless there are specific exceptions. However, there may be limited circumstances where you can claim for your commute. Please refer to our guide for more information.

Q: Where can I find the latest ATO cents per km rate?
A: The ATO releases the new cents per km rate each year. You can find the most up-to-date rate on the ATO’s official website or consult with a tax professional.

Q: What happens if my employer doesn’t provide a reimbursement scheme?
A: If your employer doesn’t offer a reimbursement scheme, you can still claim deductions from the ATO for your work-related car expenses. Make sure to keep accurate records and receipts to support your claims.

Q: How long should I keep my logs and receipts?
A: It is recommended to keep your logs and receipts for five years to comply with ATO requirements.

Conclusion

Navigating the ATO rules and regulations for mileage reimbursement and deductions can be complex. However, by understanding the different methods available to you as an employee or a sole trader, you can maximize your reimbursements and deductions while remaining compliant. Remember to keep accurate logs and receipts to support your claims. If you have any further questions, consult with a tax professional or visit the official iBlog website for more information.

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