Small businesses with low annual travel distances will benefit from the ATO’s new increased cents per kilometre rate for cars, from 68 cents to 72 cents. The new rate has been effective since 1 July 2020.
What is the cents per kilometre method?
You can claim car deductions using the cents per kilometre method if you are a sole trader or partnership. The cents per kilometre method is calculated using a set rate for each kilometre travelled for business purposes. This rate takes all of your vehicle running expenses (including registration, fuel, serving and insurance) and depreciation into account, and currently sits at 72 cents per kilometre for 2020-21.
The ATO allows you to claim a maximum of 5000 business kilometres per car in a year and does not require written evidence to show the exact distance travelled. However, the ATO may ask you to show how you worked out your business kilometres, for example, with diary records.
To make sure your claim is eligible, records you need to keep include:
• Details of the kilometres travelled for business and private use.
• Receipts for fuel, oil, repairs, servicing and insurance over.
• Loan or lease documents.
• Tax invoices.
• Registration papers.
• Details of how you calculated your claim.
Keep in mind that the cents per kilometre method is only applicable when using a car. According to the ATO, a car is a motor vehicle designed to carry both a load less than one tonne and a maximum of nine passengers.
For help with your business tax meet with one of the LT tax advisors.
Contact our team on (02) 4926 2300