Motor vehicle audits are one of the most detailed reviews undertaken by the ATO. They do not simply check whether the logbook or expenses exist, they test whether it is genuine and supported by evidence.
It is important to not assume that just having the logbook and a handful of receipts is a safe option. The logbook must be valid, and the receipts must be for the motor vehicle you are claiming (i.e. not your second vehicle).
If you ever do receive an ATO Audit for your motor vehicle deduction, it is important to be aware of the information that the ATO will ask for.
Process of an ATO Audit
The first step the ATO will proceed with is providing you an Audit letter with details of what year they are auditing, time frames on when you need the information to them by and any other special information. You can adjust your figures by providing a voluntary disclosure to say you make a mistake and you want to adjust your deductions. You can also provide evidence to support your deduction if you believe it has been correctly claimed.
Once they review the information you provide, they will come back with a result with any adjustments or that your review as successful and there were no changes.
If you disagree with the changes they have made, you then need to lodge an objection, providing further details as to why you think it is incorrect.
Audit Example
Consider a taxpayer has claimed a motor vehicle expense in their tax return of $18,000 under the logbook method using 80% business use.
They have a 12-week logbook and receipts / invoices for all expenses. However, the ATO has issued a letter to say they are auditing the amount claimed of $18,000.
In the ATO audit letter there will be a section of the information and documents required to send in. These include items such as:
- Detailed summary of how the claim was calculated
- Copies of purchase invoice and documents of vehicle (if you have claimed depreciation and interest on the vehicle loan)
- Calculation on the depreciation claimed
- Copy of the 12-week logbook completed
- Copies of all receipts for all car expenses
- Opening and closing odometer reading on the vehicle for the year of claim
- Any other evidence that the travel claimed was for employment duties – including job description, employment contracts, or relevant award / workplace agreements.
You will need to get all of the above information listed together in an easy to read format for the ATO and send this in either a letter or using the ATO voluntary disclosure form they provide.
It can be a large task, so it is important to keep ALL records together and easy to access.
Logbook
The logbook you provide must contain the below. The auditor isn’t simply looking for a completed logbook, however for evidence that the records have been maintained accurately to reflect the business usage.
- Period of the logbook – start and end dates
- Odometer readings at the start and end
- Total number of kilometres travelled between the start and end
- The number of kilometres travelled between each trip and a detailed reason for the journey
- Business use percentage of the period
- Odometer readings at the start and end of each income year you use the logbook for
The description of ALL trips must show the purpose of the journey, it cannot simply just say “business trip”, “meeting”, etc. Instead, it needs to show details such as “Client Pty Ltd, quarterly meeting”, or “Supplier Pty Ltd pick-up stock” or “travel between office AAA and office BBB”. The Auditor will assess the trips heavily and note that a deduction is not allowable for the travel between your home and normal workplace as it is considered private.
In our example, if the taxpayer did not show details of some of the business trips and had a few home to work travel down as business kilometres, the ATO auditor will change the classification to private and remove this from the business kilometres. Resulting in a reduction of 80% business use to 60%.
Receipts and invoices
You will need to provide ALL receipts and invoices.
In our example, if the taxpayer did not keep a receipt for a $1,000 repair or $1,200 insurance payment, they will be excluded from the claim you originally made.
Audit outcome
The ATO will then come back with an outcome after you have submitted all the above information. They will review all documentation and logbook. If they find any inconsistencies or errors within the information, they will manually adjust your original calculations for you.
In our example, if they have several trips in the logbook that they lack sufficient business purposes, they were from home – work and back to home or there was missing kms, etc. then the ATO will treat these as personal kilometres. The ATO then has come back to say the business use of the vehicle is only 60% not 80%.
The missing documents will also mean the claim will be reduced by $2,200 as there was no evidence of receipts for those expenses.
The result will be a reduced deduction and additional tax payable.
There could be additional interest charges for the incorrect claim and potential admin penalty charges.
Two further notes:
- If you have an electric vehicle, and you get an ATO Audit, they will ask for how you calculated the home charging rate and/or electricity costs.
- If your claim relates to carrying / transporting bulky tools and equipment, the ATO will ask for a list of all work items carried, the weight and size. As well as details of the storage available for the tools and equipment at your workplace (where it is located, dimensions and whether it can be locked). They may contact your employer.
Key takeaways
Just because you have a logbook with all business trips and kms, doesn’t mean the ATO will accept it. It needs to have detailed descriptions of what the business trip was for. As well as keeping service records and odometer readings at 30 June/1 July each year. They will test the percentage against independent evidence.
A final reminder ALWAYS keep ALL invoices and receipts.
Comments are closed.