Motor vehicle expenses using the log book method

It has recently been identified that there has been an increasing number of ATO audits focusing on car expense claims under the log book method in Division 28 (i.e., S.28-90 to S.28-155).

This method of claiming car expenses is often used for cars with a relatively high business use. This includes cars used by employee sales representatives/managers, marketing managers, IT consultants, real estate agents or consultants and individuals carrying on business (i.e., sole traders).

On this basis, it is expected that the ATO will heavily scrutinise car expense claims under the log book method for the 2023 income year, with a particular focus on identifying log book records that do not comply with the stringent log book requirements in Division 28.

Potential audit traps with claiming car expenses under the log book method

  • Log books not kept for the required 12-week period (you must complete a 12-week log book that is consecutive)
  • Change in use of vehicle for example your employment or work has changed and you now work from home (WFH) and the number of kilometres travelled has changed, therefore a new 12-week logbook needs to be completed
  • Using a log book that is more than 5 years old (the log book method allows you to use the same work-related or business percentage for up to 5 year, however once this has lapsed you need to complete a new 12-week logbook)
  • Failing to comply with the requirements for recording business journeys in a log book (it has been identified that one of the most common audit adjustments for car expense claims under the log book method involves a failure to comply with the log book requirements in so far as they relate to the recording of business journeys (or trips) in a log book):
    •  The day the journey began and the day it ended.
    • The car’s odometer readings at the start and end of the journey.
    • How many kilometres the car travelled on the journey.
    • Why the journey was made (i.e., an appropriate description of the purpose of each trip).

Tax Tip: the description of the trip should be detailed, for example “client visit to Melbourne CBD” or “travel to and from offsite client meeting or “purchase of supplies at Bunnings” etc

Making a reasonable estimate of a car’s business kilometres

Your claim for the 2023 income year must be based on a reasonable estimate of your car’s business kilometres. This must take into account a valid log book (noted above) and any changes in the way your car was used for both work/business and private purposes during the year.

Having odometer records

You must also keep odometer records for the period during the 2023 income year that you held your car. These records must include your car’s odometer readings at the start and end of the period and your car’s make, model and registration number.

Should you have any queries in relation to the above, please feel free to contact our office.
t: +61 7 3177 4120

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