With fuel prices on the rise, along with a global environmental awareness, the electric vehicle market in Australia has seen an exponential growth. For small business owners where business vehicles are a common asset with sizable deductions, it is important to know the differences between what can be claimed for a motor vehicle (MV) and an electric vehicle (EV). For the most part, EV’s are treated identically to MV’s however, while fuel is easily quantifiable and therefore easily deductible, the same cannot be said for electricity.
The current ATO accepted methods of calculating vehicle deductions are the cents per kilometre method and the logbook method.
The logbook method for motor vehicles allows a deduction for all running costs, including fuel, at a business use percentage, provided a sufficient logbook has been maintained see ATO guidelines for advice. Understandably, for EV owners the ability to claim fuel costs provides little benefit. There is very little ATO guidance on claiming electricity costs for EV’s and as such it is crucial to have a justifiable expense claim. In practice, the extensive process of determining the electricity cost of charging an EV offers little reward. After apportioning your home electricity bill for the EV related use and further apportioning this by the business use percentage, the resulting deduction is minimal.
Benefits of the logbook method:
- Represents deductions for actual costs incurred for each year
- Ability to include vehicle depreciation as a deductible expenditure
Cents Per Kilometre Method
The cents per kilometre deduction allows a general $0.72 deduction in relation to the business use kilometres (up to 5,000kms) and excludes the potential depreciation on the vehicle. This $0.72 per kilometre deduction is assumed to cover the running costs of a vehicle with minimal record keeping requirements. Although this method does not allow increased deductions for years where the car may undergo extensive services or other expenses, the resulting deduction is often marginally better than the logbook method for EV’s, assuming the car was not recently purchased and a depreciation deduction was not available.
Benefits of the cents per kilometre method:
- Accepted ATO standard rate allowing for electricity to be recouped along with other running costs
- Simple calculation requiring little maintenance
How We Can Help
Given the rigid structure of the cents per kilometre method, as well as the 5,000km limit on the claim, it is unwise to solely use this method when calculating electric vehicle expenses. Instead, we can make use of the ability to select either method on a year-by-year basis. At Walshs, we can assess the EV expenses for each year and determine the method providing the greatest benefit to you. We can advise how to optimise your EV claim each year to ensure you are making the most of your vehicle in each financial year.
Article by: Roarke Ronan, Accountant, Walshs