Calculating motor vehicle mileage for tax purposes

Many of us have motor vehicles that are provided by our employers for business purposes, however it’s important to understand the tax implications of using the vehicle for private use.

A car is defined as a sedan or station wagon or any other vehicle with a carrying capacity of less than one tonne. This includes panel vans and utilities (including dual cab).  Private use of a car is taken to be where the employee or director uses the vehicle for private purposes, such as home to work, travel to sporting events, or any other use that is not directly related to the conduct of business.  Using a company-provided vehicle for private purposes will mean you may have a tax liability to consider at the end of the financial year.

Your accountant will typically calculate the private-use component for your tax return each year using a fringe benefits employee contribution or a private-use apportionment.  There are two methods used to calculate private-use apportionment:

1. Statutory formula method – 20% of the cost of the car
2. Operating cost method – where a percentage of the total vehicle expenses for the year are apportioned to private use

Operating Cost Method

The operating cost method, which requires the maintenance of a log book for a 3-month period, is often the preferred method as it can more accurately reflect the actual percentage of private use – which is typically lower than when using the statutory formula method.

As an example, assume a car worth $60,000 has running costs of approximately $20,000 per year, which includes fuel, registration, repairs, and depreciation. If your log book records show private use at 15%, the employee contribution will be $3,000 per year.  If the statutory formula method is used, i.e.  20% of $60,000k, this results in an employee contribution of $12,000.  Any employee contribution is deemed to be assessable income for the company and is taxed at company tax rates.

Keeping a log book

Keeping a log book isn’t difficult – it just requires a little discipline! You can buy a log book at your local stationery supplier and then simply keep a record of all travel for a continuous period of 3 months.  If you prefer digital solutions, there are electronic and online log books available too.  Be sure to check that any digital log book option includes all the required fields for a compliant log book.

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