A business registered for GST must include the goods and services tax on everything that it sells or service it provides, but it can also claim the GST included in its business expenses. Where an expense has both private and business components GST can only be claimed on the business portion.
Q. Last year my accountant put through car expenses on a cents per kilometre basis. For the 2015 financial year I will have two cars. Am I able to claim the cents per kilometre basis for both cars?
I am thinking of doing the annual accounting and BAS for the family trust that runs my business but I am struggling to understand what input tax credit that I can claim for car expenses on the BAS. Do I base the GST claim on the cents per kilometre tax deduction, or is it something else?
A. There are four methods a business can use to claim motor vehicle expenses. The three that require the least amount of work are based on the number of business kilometres driven each year. A logbook does not have to be kept to prove the business travel, but the business owner must be able to demonstrate how they calculated the number of business kilometres driven.
For vehicles that drive less than 5000 business kilometres a year the cents per kilometre method can be used. Where more than one vehicle is used for business purposes during a year a maximum of 5000 kilometres can be claimed for each vehicle.
Businesses registered for GST and using the cents per kilometre method can claim the GST input tax credits included in their motor vehicle expenses. The GST claimable is not based on the amount of the tax deduction but is based on the actual running costs of the vehicle. This means if GST is to be claimed on motor vehicle expenses, where the cents per kilometre method has been used, the running costs for each vehicle must be totalled.
The amount of GST that can be claimed as a credit depends on the business kilometres claimed. Those percentages are:
Where a claim is made for a vehicle that is travelling 5000 or more businesses kilometres a year the amount of GST claimable is one third. This percentage applies for the cents per kilometre method, the one third of all running costs method, and the 12 per cent of original value method.
In your case if you have used the cents per kilometre method, the engine capacity of the vehicles are more than 2.6 litres, and each vehicle drove more than 5000 kilometres, your tax deduction at 75 cents per kilometre would be $3750. If the combined total running costs for both vehicles for the year was $6600 including GST, the amount of input tax credit claimable would be $200.
Questions on small business income tax and other issues can be emailed to firstname.lastname@example.org
Max Newham is the founder of www.smsfsurvivalcentre.com.au