While most people want to do the right thing, the ATO acknowledges that the rules can be a bit tricky for some so they are seeing a lot of mistakes.

There are two ways to calculate a deduction for car expenses – the cents per km method which is limited to claims for work-related travel up to 5,000 kms, and using a log book to determine the work-related percentage of actual expenses incurred.

Each year around, 870,000 people claimed the maximum amount under the cents-per-kilometre.

It’s legitimate to claim for 5,000 kilometres if you did actually do them as part of earning your income. However, the ATO is concerned that some taxpayers mistakenly believe that this is a “standard” deduction they are entitled to, without needing to provide any evidence of having travelled that distance, or even having undertaken any travel at all.

Claims of up to 5,000 kilometres using the cents per km method don’t require a log book. However, you still need to have done the kilometres as part of your job and be able to show how you calculated your claim, for example by keeping a diary of places you have had to drive to for work, and how often. 

The ATO’s ability to identify claims that are unusual has improved due to enhancements in technology and data analytics. They compare taxpayers to others in similar occupations earning similar incomes. Their models are especially useful in identifying people claiming things like home to work travel or trips not required as part of their job.

Unless you have a work-related need to travel while performing your job, you won’t be able to claim a deduction. For example, travelling from home to work is not deductible for most people. There are a few exceptions, like if people travel from site to site or are required to transport bulky tools or equipment and their employer does not provide them with secure storage at work. However, simply travelling from home to work is not enough to qualify, no matter how far you live from your workplace.

The ATO is advising taxpayers that they may request proof that you were required to undertake the travel for work. A good way to check that your travel claim relates to your work is to ask yourself, “Did my employer require me to do that travel as part of my duties, or did my employer require me to transport bulky tools or equipment to and from work?”

The ATO is warning taxpayers to not double-dip.

You can’t claim expenses you didn’t pay for, including when your employer provided the vehicle or reimbursed your expenses, including under a salary sacrifice arrangement or novated lease.

There are three golden rules for taxpayers to remember to get it right:

• You have to have spent the money yourself and can’t have been reimbursed
• The claim must be directly related to earning your income, and 
• You need a record to prove it

The ATO has to disallow lots of claims because the taxpayer didn’t keep the right records. But the myDeductions tool in the ATO app can help make keeping records easier. The app is particularly useful for people who use their car for work, as it helps them track trips using GPS, point-to-point or the odometer method. At tax time this data can be sent directly to a tax agent or uploaded into myTax.

To view some case study examples, visit the ATO's website or call Flor-Hanly in Mackay on 07 4963 4800.