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How to dodge a $4,200 mistake on your tax return

Young women sitting with open mouths in a car.
Image: Getty

Australians filling in their tax returns have been warned they could be up for penalties of up to $4,200 for incorrectly providing information on car-related expenses.

Will Davies, chief executive of car-sharing platform Car Next Door, said the Australian Taxation Office (ATO) is cracking down – but there are plenty of legitimate claims to be made if you use the car for producing income.

"Many car owners don’t know about all of the deductions they could be claiming when they rent their car out," he said.

There are four types of claims, according to Davies, that can be made if the vehicle is used for work:

  1. Carrying tools or other equipment needed for your job

  2. Travelling from home to an alternative workplace (like a client’s office) then back to your main workplace or home

  3. Travelling to meetings, conferences or events required by your employer

  4. Travelling between two separate workplaces where you are employed and delivering or picking up items, as required by your employer.

"Separately from your work-related car use, if you are car sharing, or rent your car out, you can claim your entire membership fee, plus some or all of your biggest expenses, like registration, insurance, servicing, cleaning, depreciation and fuel," he said.

So that's what you can claim. But remembering that 40 per cent of all work-related deduction claims are associated with vehicle use, there are common errors that the ATO will pounce on.

Here are the 6 biggest car-related mistakes, according to Davies:

1. Claiming your normal travel to and from work

"This isn’t claimable, even if you do a small work-related task like picking up the mail," Davies said. "Even if there’s no public transport available when you head home after working overtime, it’s not claimable either."

2. Claiming for carrying equipment where it is not required by your employer

"If you can't prove this is required by your employer or there’s no safe place to store your equipment at work, then it’s not claimable."

3. Claiming expenses associated with a company car or car purchased on a novated lease

"Be careful not to ‘double dip’ on car expenses – you can’t claim expenses that have already been paid for by your employer, including salary sacrificing arrangements."

4. Claiming expenses without records to back them up

"One of the most common mistakes car owners make, is claiming car costs using the ATO’s cents-per-kilometre method, without the records to back them up," said Davies.

"You can claim up 5000km a year at 68c per kilometre in 2019 tax year, but this is not a ‘free pass’ - you must be able to provide documentation. If you rent your car out, the car-share platform should be able to provide you with a summary of all of the kilometres driven during bookings, to make it easy to claim."

5. Forgetting to claim depreciation

"Many car owners forget to include depreciation when they’re adding up their annual car expenses at tax time. If you use your car for work or rent it out, ask your accountant about how you should calculate depreciation as it may add thousands to your allowable deductions."

6. Not claiming all allowable expenses, if you rent your car out

"Any money you earn from renting out your car is considered taxable income and must be declared on your tax return, but you can also claim expenses for the portion of your car costs that relate to the rental activity, or a simple 68 cents for every kilometre your car is driven by borrowers."

Davies said car sharing in Australia has taken off.

"We have seen a dramatic rise in the last 18 months with the number of members signing up to borrow cars tripling. The number of bookings per vehicle is also up 40 per cent."

Car Next Door, which was launched in 2012, is a platform that members people to earn money from their car when it's not being used and takes care of complications like exchange of key, payments, toll, insurance and roadside assistance.

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