Covid-19 and car expenses:
The impact of the COVID-19 pandemic on the economy has been far-reaching, and almost everyone’s work habits have been impacted in some way. Whether that is a change of schedule, updated responsibilities, or a change in work location. Many people are now taking client meetings via zoom and working from home.
For many people, this may mean that there will be a decrease in car and travel expenses for the 2020–21 and potentially the 2021–22 income year. But how does this affect you if you were using the logbook method? Your actual usage of the car may have changed due to a change in work habits caused by COVID-19 and working from home.
Given the ATO’s extensive and ever-expanding compliance and data matching capabilities, incorrect car expense claims are more likely to be detected and disproved than ever before. Car and travel expense claims are a focus for the ATO year-on-year, and the ATO has already flagged with us that work-related expense claims will be targeted to ensure taxpayers aren’t copying and pasting claims from previous years.
Using the log book method:
A taxpayer can use the logbook method if they held (owned or leased) a car for some or all of the income year. The logbook provides a record of the car use for at least 12 continuous weeks. This will then serve as a representative period of car travel for the income year and be used to determine a business use percentage. This percentage can then be used as the basis for your deductions in your tax return.
A percentage of expenses for a motor vehicle (which can be used for up to five years) when using the logbook method is worked out by using the following formula:
| Each car expense | x | Business use percentage based on a reasonable estimate of the number of business kilometers for the year. |
Working out the business use percentage:
The business use percentage which the taxpayer can use is calculated as:
The number of business kilometers that the car travelled in the period held
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The total number of kilometers that the car travelled in that period
The number of business kilometers is based on a ‘reasonable estimate’, which takes into account:
- Any log books, odometer records or other records that the taxpayer has;
- Any variations in the pattern of use of the car
- Any changes in the number of cars that the person used while producing his or her assessable income.
Documentary evidence requirements
Rules and requirements about keeping the log book are:
- The log book must be kept for the first income year in which the log book method is being used for the car.
- The log book must cover a continuous period of at least 12 weeks throughout which the car is held. If the car is held for less than 12 weeks, the period must be the entire period for which the car was held.
- The logbook must also set out when the period starts and ends, the car’s odometer readings at the start and end of the period and the total number of kilometers that the car travelled during the period. Furthermore, the number of kilometers that the car travelled is also needed (in the course of producing assessable income, on journeys recorded in the log book).
- Odometer records must be kept for the period when the car was held and an estimate of the number of business kilometers and the business use percentage MUST be recorded in writing before lodging the income tax return.
Odometer records
Odometer records document the total number of kilometers the car travelled during a particular period. They also record the car’s engine capacity and other details.
Details such as:
- Opening and closing odometer readings for the period; and
- In the case of replacement vehicles, readings on the date the replacement took effect.
- Cars make, model, registration number
- Engine capacity in cubic centimeters; and
- The corresponding details for any replacement vehicles.
Retention of log book and odometer records
Log books must be retained for FIVE YEARS after the end of the latest year in which the person relied on the log book. If the log book is not retained for the whole period, the claims made based on the log book can be disallowed.
Odometer records must be retained for the period in each year when the car is held. If a log book is retained, odometer records must be kept for the same period as the log book. The five-year retention period applies in the same way.
If the year of income is one during which a log book was not kept, the odometer records must be kept and retained for the same period as any written evidence of the expenses is kept for that year. This will also generally be for five years.
What do the COVID-19 restrictions mean for an existing log book
As outlined above, a log book provides a representative period of travel which is used to work out how much of a cars expenses is deductible. If the pattern of car usage has changed after the log book was completed due to COVID-19 movement restrictions, does a new logbook need to be kept for an updated representative period of private and business usage during the COVID-19 pandemic? Not necessarily.
Under the law there are only two situations in which a taxpayer is legally obliged to keep a log book for an income year before the five-year expiry:
- if the Commissioner sends the taxpayer a notice directing a log book to be kept; or
- if the taxpayer acquires one or more additional cars for which they want to use the log book method.
However, this does not mean that taxpayers should or could simply apply the business use percentage calculated using pre-pandemic logbook data. A log book is only one of the ‘relevant matters’ which the taxpayer is required to take into account in determining their reasonable estimate of the business kilometres travelled (see ‘Working out the business use percentage’ above). The taxpayer is obliged to consider the impact of work restrictions as well as any other relevant matter in conjunction with their log book.
Question: I claim my car-related expenses using the logbook method. Will I need to keep a new logbook for an updated representative period of private and business usage during COVID-19?
Answer: No, you are not required to keep a new logbook for the period in which your travel has been affected by COVID-19 as long as you account for any variation in the use of the car when working out your business kilometres and your business use percentage at the end of the income year.
In relation to the period in which your travel has been affected by COVID-19, you may keep a new logbook if you think it will provide a more accurate indication of your business use of the car. However, if your overall business usage has not changed and you are merely using the car less, the odometer readings will reflect this and you will not need to keep another logbook.
ATO Approved Logbook Apps:
| App | Features (Some of many) | Price Range |
| Driversnote | Log odometer readings.
Automatically logs trips. Classify business from personal. |
Free (Lite version)
$13.50 (Basic Version)
|
| Netstar | Vehicle tracking software.
Comprehensive reporting. Compliance reporting (fuel tax credits and FBT). |
Various different packages and versions. Contact Netstar to find out more |
| EROAD | Live vehicle tracking & activity.
Fuel usage, management & efficiency reports. Virtual speed camera. |
Call for personalised quote and demo on EROAD website. |
| EZY Car Log | Concise drive summary.
Individual drive details. Simple tax logbook recording app. |
$14.99 one time payment for mobile app |
| gpsi | Automatically calculates off-road travel, off-road idling and auxiliary fuel usage to support fuel tax rebates.
Reduce operating costs through vehicle data and algorithms. ‘Most accurate and trusted vehicle logbook solution’ |
Contact gpsi for quote. |
| LBM fleet solutions | Online, cloud based logbooks.
FBT year end workflow for drivers to submit at year end. Automated monitoring of fuel tax credit. |
Contact LBM fleet solutions for more info |
