You can claim expenses for income tax purposes as long as they are directly related to the sharing of your car, and you keep records such as receipts to back up your claims. The ATO has published a guide to the deductions you can claim for peer-to-peer car sharing.
In this article, we will look at the main costs that you may be able to claim when sharing your car.
This is general advice only, and may not be appropriate to your situation. It assumes that you are sharing your car personally and not as a business.
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The ATO considers the useful life of a vehicle to be 8 years, starting from the date that you purchase the car (not the date it was manufactured). Using the ‘diminishing value’ method to calculate depreciation (explained below), you will depreciate the value of the car over that period at 25% per year.
Most of the tax-deductible depreciation will occur over the first 4 years or so after you buy the vehicle, but you can still claim something each year up to the end of the 8 year period.
Remember that you can only claim depreciation if you use the Logbook method. If you use the cents-per-kilometre method, depreciation is already included so you can’t claim it again.
Here’s how to work out depreciation on your car:
Depreciation is an allowance for the decline in value of a car. There are two methods for calculating depreciation on your car: diminishing value and prime cost.
This article focuses on diminishing value method, which works for most people - however you should get advice from your accountant.
Depreciation is calculated from the date you bought the car, even if that was before you listed it with Car Next Door.
To start, you’ll need a record of the purchase price and the date of purchase (including any registration transfer fees or other costs of purchasing the car).
You will depreciate a car at 25% a year. At the end of each financial year, you work out the depreciated value (the 'written-down value'). The following year, work out depreciation as 25% of that written-down value, and so on.
For example, say you bought a car for $10,000 at the start of the financial year.
In the first year, your car has depreciated 25%, so by $2,500.
Subtract that depreciation from the $10,000 purchase price to get $7,500 - this is the ‘written down value’ of the car.
The next year, you calculate depreciation as 25% of that written-down value (not the original $10,000 purchase price).
This means in the second year you claim 25% of $7,500, which is $1,875 in depreciation.
Subtracting that $1,875 from $7,500 gives your car’s new written-down value of $5,625, so in year 3 your depreciation will be 25% of $5,625 - and so on afterwards.
Jill bought a second hand car on 1 July 2017 for $10,000.
Up until 30 June 2018, she used the car privately.
On 1 July 2018 she put it on Car Next Door, kept a logbook, and found that her car was used 40% to earn income.
Firstly, we have to calculate the depreciation for the first year she owned it, even though it isn’t claimable.
This is $10,000 x 25% x 365/365 = $2,500
We deduct this $2,500 from the $10,000 she paid.
This equals $7,500, and is what we call the written down value of the car, at the end of 30 June 2018, just before she put it on Car Next Door.
We then take this written down value, which was at 30 June 2018, and work out her depreciation for the year her car was on Car Next Door, which was the year ending 30 June 2019.
This is $7,500 x 25% x 365/365 = $1,875
The amount of depreciation she can claim is 40% of this (based on her logbook)
Meaning she can claim $1,875 x 40% = $750
If you purchased or listed a car part way through the financial year
The calculation is based on days you owned the car in that financial year. If you only owned or shared the car for some of the days in the financial year, you can simply use that number of days in the calculation above.
For example, Jeff listed his car in January 2018, so it was listed for 180 out of the 365 days in the 17/18 financial year.
Assuming that Jeff has worked out his car’s written-down value at the start of the 17-18 financial year to be $7,500, and that his logbook shows that 40% of its use was by Borrowers, his calculation is:
$7,500 x 25% x 180/365 = $924.65
Can I claim the full purchase price in one year instead of claiming depreciation over time?
You can’t claim the full purchase cost of the car in one financial year (you can only claim the depreciation for that year) unless you are running your car sharing as a business, in which case different rules apply - seek professional advice if that applies to you.
Car Next Door membership fees
Any fees that you pay to list your car on the Car Next Door platform (that is, your monthly Sharing Plan fees) are tax deductible, whether you are using the Logbook method or the cents per kilometre method.
You can find a record of these fees on your monthly invoices, or download it in your annual financial statement.
Other costs relating to a car that you own
If you are using the Logbook method, you can claim a percentage of the costs of owning and running the car.
In addition to depreciation, your costs may include:
- Interest on a loan you have for the car
- Insurance (if you have insurance for your car in addition to your Car Next Door membership)
- Annual registration fees
- Servicing and repair costs
- Cleaning costs
- Parking permit fees or payments for a dedicated parking space for your car
- Accessories you buy for your shared car (e.g. floor mats, window shades, etc)
- Car Next Door’s commission (shown on your monthly and annual statements)
Recording and claiming fuel costs
- You pay for all of the fuel that is used in your car - whether you buy it yourself, or Borrowers buy it and the cost is passed on to you through your Car Next Door account.
- You should keep receipts each time you purchase fuel for your car.
- The fuel that is charged to your Car Next Door account will be shown on your monthly statements and in your financial year summary.
- To get the total fuel cost for your car, add the amount that you spent of fuel and the amount that Borrowers spent on fuel.
Are there any other costs I can claim?
If there is anything you want to claim that you are unsure about or that is not listed in the ATO guide to peer-to-peer car sharing deductions, you should ask your accountant or get a private ruling from the ATO. Your income and deductions from Car Next Door is more likely to be looked at than most other types of income and deductions, so err on the side of caution and don’t claim costs that you can’t substantiate.
What income you need to declare in your tax return
How to apportion your expenses between personal and income-producing use
Tax requirements for sharing a car that is owned by someone else or jointly owned
Can I claim a Car Next Door loss against my salary and other income?