Advivo Accountants and Advisors explain when you need to complete a logbook.
Keeping a logbook helps you separate private and business kilometres so you can provide proof of your car expenses to the Australian Tax Office (ATO), so they know which expenses to reimburse. Learning how to keep accurate tax records is worth your while.
What does a good logbook look like and what must go in it?
- Logbooks must be kept for at least 12 continuous weeks (that period must reflect the vehicle’s pattern of travel throughout the year)
- The logbook should contain the following details:
- The registration number, make, model and engine capacity of the vehicle
- The date the logbook period begins and ends
- The vehicle’s odometer readings at the start and end of the logbook period
- The number of kilometres travelled during the logbook period
- The odometer reading at the start and end of each journey
- The number of kilometres travelled for each journey (multiple journeys in a row on the same day may be recorded as a single journey)
- The date and purpose for each journey (if the trip is business, a brief description of the trip will be required to confirm its status rather than just a comment that says “business”)
- The business-use percentage for the logbook period
- For each subsequent year that the logbook is valid, the odometer readings at the start and end of each year must be recorded
Can I use my vehicle as a tax deduction?
For some time now, small business owners have been spruiked to that they should buy a ‘commercial vehicle’ such as a certain dual cab ute, because it will mean they can claim 100% of it as a tax deduction regardless of their private usage, and without having to worry about Fringe Benefit Tax (FBT) as these vehicles are exempt from FBT.
It’s only in the below circumstances that a vehicle will be considered as exempt from FBT. The ATO outlines:
“The private use of a motor vehicle is exempt from FBT if all of the following conditions are satisfied:
- the vehicle is a panel van, utility (ute) or other commercial vehicle (that is, one not designed principally to carry passengers)
- the employee’s private use of such a vehicle is limited to travel between home and work
- travel that is incidental to travel in the course of duties of employment
- non-work-related use that is minor, infrequent and irregular (e.g. occasional use of the vehicle to remove domestic rubbish)”.
With the recent improvements in dual cab utes there are increase in this type of vehicle been provided to employees by the employer, with the tax office looking closely at this in the recent years. Dual cab utes are capable of qualifying for the work-related use exemption only if designed to carry a load of one tonne or more, or more than eight passengers or if have a designed load capacity of less than one tonne. They are not designed for the principal purpose of carrying passengers.
The important consideration here is whether the dual cab is principally designed to carry passengers. There is a complex calculation required to make this determination, but the general rule is if the total determined passenger weight exceeds the remaining load capacity the dual cab will be subject to FBT for all private usage. According to the ATO the carry capacity of a vehicle is equal to the maximum loaded vehicle weight less unladen vehicle weight – this is, the weight of the vehicle with a full capacity of lubricant, coolant and fuel together with spare wheel, tools and installed options. It does not include the weight of goods and occupants. While there are many dual cabs on the market that meet the capacity test, it also very important to demonstrate how the usage of the vehicle has been controlled and limited to minor and infrequent private use.
Recording a logbook?
Keeping a logbook is a worthwhile way to claim your tax deductions but does require some diligence in noting down the details of each drive you make. You might choose to use a paper version logbook, but more people are finding the use of electronic logbook apps more accurate and efficient.
When should a logbook be done?
We outline the instances where you should have logbooks prepared for your business vehicles:
- Using the operating cost method for FBT: The operating cost method of calculating FBT on vehicles often results in lower FBT payable compared to the alternative method, the statutory formula method. Keeping a logbook is essential to qualify for the operating cost method. You should get your employees to prepare a logbook for the vehicles that you provide them. It is advantageous to have logbooks prepared for vehicles that have significant business use – the higher the business use, the lower the private use and hence the lower the FBT that would apply.Other points to note:
- Where employees share a vehicle during a year, each employee will need to prepare a logbook to substantiate their respective business use percentages.
- Where an employer replaces a car, the employer may elect for the original car’s logbook records to apply to the replacement car before the employer lodges its FBT Return, provided the replacement car has a similar business use to the original car.
- Current logbook expires: A logbook is valid for 5 years (including the year the logbook is prepared), provided there is no significant change in the vehicle’s business use during that period. Once the 5-year period expires, you will need to keep a new logbook if you wish to continue using the operating cost method.
- Changes in vehicle’s pattern of business use: A vehicle’s logbook percentage should reflect its pattern of business use. If the business use changes significantly (whether upward or downward), a new logbook will be needed to substantiate the new business use.
- Unsure whether the logbook is needed: Many employers assume that commercial vehicles (e.g. dual-cab utes andvans) are automatically exempt from FBT. That is not the case. The recently released Practical Compliance Guideline PCG 2018/3 has specific conditions that must all be satisfied for a commercial vehicle to be exempt from FBT. That includes the requirement that private travel falls within the following limits in order to be considered minor, infrequent and irregular:
- 2 kilometres added to a trip between home and work; and
- 1000 kilometres in total for an FBT year (1 April to 31 March) and where no single return journey exceeds 200 kilometres.
That means if your vehicle’s private use exceeds either of the above limits, then your vehicle will not be exempt from FBT. In that case, you should keep a logbook to substantiate the vehicle’s business use (the private use portion will be subject to FBT). If you are uncertain whether you/your employees can meet all the requirements in the PCG, it would be prudent to maintain a logbook to be on the safe side.
If you wish to access FBT exemption based on criteria in PCG 2018/3, we suggest:
- Implementing policies that restrict the private use of your commercial vehicles to the above limits.
- Obtaining annual declarations from your staff that confirm their private use is within the above limits.
If you’re unsure about your obligations in relation to the FBT guidelines and how to keep a good logbook, contact us today to speak with one of our FBT specialists.