A Complete Guide to Claiming Deductions for Motor Vehicles Used by Employees

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Introduction

If your business provides vehicles to employees for work-related duties, understanding how to claim deductions correctly is essential. The Australian Taxation Office (ATO) has detailed guidelines outlining what can be claimed, how to calculate business use, and what records must be kept—especially if there's any private use involved. This comprehensive guide explains the requirements for claiming motor vehicle expenses when employees use vehicles provided by their employer.

1. When Your Business Provides Motor Vehicles to Employees

If your business owns or leases vehicles and provides them to employees, you may be eligible to claim deductions for operating costs. This includes circumstances where:

• The vehicle is used entirely for work purposes.
• The vehicle is used for both business and private purposes.

You must assess whether Fringe Benefits Tax (FBT) applies when employees use vehicles for personal travel.

2. Types of Vehicles Covered

There are two primary types of vehicles your business might provide:

• Cars: Vehicles designed to carry fewer than nine passengers and less than one tonne.
• Other Vehicles: Includes vans, utes, trucks, and motorcycles.

If employees use these vehicles for personal travel, FBT rules typically apply, even if only occasionally.

3. Fringe Benefits Tax (FBT) and Private Use

FBT generally applies if a vehicle is provided to an employee and is available for private use. This includes:

• Travel between home and work
• Weekend use
• Holiday travel

However, if the vehicle meets specific ATO criteria (e.g., commercial vehicle with minimal private use), it may be exempt from FBT.

4. What Deductions Can Be Claimed

As an employer, you can claim deductions for the costs associated with owning or leasing vehicles used by employees, such as:

• Fuel and oil
• Repairs and servicing
• Insurance
• Lease or loan interest
• Registration
• Depreciation (decline in value)

You must apportion expenses if the vehicle is not used exclusively for business.

5. How to Determine Business Use

Accurate records must be kept to substantiate the business use of motor vehicles. This includes:

• Odometer readings
• Logbooks or travel diaries
• Fuel and maintenance receipts
• Details of private vs. business travel

For FBT purposes, the operating cost method or statutory formula method can be used to calculate taxable benefits.

6. Operating Cost Method (FBT)

This method calculates the taxable value of the benefit based on the actual operating costs of the vehicle. It requires:

• A logbook to determine business vs private use
• Records of all vehicle expenses

Deductible expenses are calculated in proportion to business use.

Example:

• Total expenses: $10,000
• Business use: 60%
• Deduction: $6,000

7. Statutory Formula Method (FBT)

This is a simplified approach where a set percentage (20%) of the vehicle's base value is used to calculate the taxable benefit. It doesn’t require a logbook but may not provide as favourable a deduction as the operating cost method.

8. Exemptions from FBT

Some vehicles may be exempt from FBT if they meet the following criteria:

• The vehicle is not a car (e.g., van or ute)
• Used primarily for business
• Private use is minor, infrequent, and irregular

Minor private use examples:

• Stopping at a shop on the way home
• Occasional weekend trip

9. Record-Keeping Requirements

Good records are essential to:

• Substantiate expense claims
• Calculate the business-use percentage
• Determine FBT liability

Keep the following:

• Odometer records (start and end of the FBT year)
• Logbooks (for 12 weeks every 5 years)
• Receipts for fuel, repairs, and insurance
• Leasing and loan documentation

10. Depreciation and Car Limits

When a business owns a car used by an employee, depreciation can be claimed up to the ATO car cost limit (currently $68,108 for 2023–24). Any amount above this cannot be depreciated.

11. GST and Motor Vehicles for Employee Use

If your business is registered for GST, you can generally claim GST credits for vehicle expenses if the vehicle is used in carrying on your business.

However, you must adjust your GST claim if the vehicle is used for private purposes.

12. Vehicles Leased for Employee Use

If the business leases a vehicle for an employee, lease payments can be deducted. GST credits can also be claimed on the lease if it's used for business.

However, FBT may still apply depending on how the vehicle is used.

13. Novated Leases and Employee Contributions

Under a novated lease arrangement, an employee leases a vehicle and your business makes lease payments on their behalf. In this case:

• FBT may apply
• You can still claim deductions
• Employee contributions can reduce FBT liability

14. Common Mistakes to Avoid

• Not keeping odometer readings
• Using the statutory formula method without comparing it to the operating cost method
• Failing to record minor private use
• Overclaiming private expenses

15. Example Scenarios

15.1 Vehicle Exclusively for Business Use

• Ute provided to technician
• No FBT if used only during work hours and garaged at workplace
• Full operating costs deductible

15.2 Mixed Use Vehicle

• SUV provided to sales rep
• Used on weekends
• FBT applies
• Deduction based on business-use portion

15.3 Vehicle with Minor Private Use

• Van used for deliveries
• Employee uses it once a week for groceries
• May qualify for FBT exemption if use is irregular

16. How Trinity Accounting Practice Can Help

At Trinity Accounting Practice, we assist businesses with:

• Correctly claiming deductions for employee-used vehicles
• Managing FBT obligations
• Calculating business-use percentages
• Setting up logbooks and records
• Ensuring ATO compliance

Whether you run a small business or a growing company with a vehicle fleet, our experienced team will guide you through the rules and ensure maximum deductions while staying compliant.

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Conclusion

Claiming deductions for motor vehicles used by employees is a great way to reduce business costs, but it requires accurate calculations, appropriate method selection, and strict record-keeping. Trinity Accounting Practice is here to help you simplify the process, meet your tax obligations, and get the most from your deductions.

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Contact Us Today

👉 Trinity Accounting Practice
✅ Accounting Firm in Beverly Hills
☎️ 02 9543 6804
📍 159 Stoney Creek Road Beverly Hills NSW 2209
🌐 www.trinitygroup.com.au
📅 Weekend & after-hours appointments available!
📅 Booking Link https://calendly.com/ramy-hanna

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References:

• ATO. "Motor vehicles used by your employees." https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/income-and-deductions-for-business/deductions/deductions-for-motor-vehicle-expenses/motor-vehicles-used-by-your-employees
• ATO. "Fringe Benefits Tax." https://www.ato.gov.au/business/fringe-benefits-tax
• Business.gov.au. "Claiming vehicle expenses." https://business.gov.au/finance/tax/tax-deductions

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