Question

Anja is an advisor. She uses her own car to travel to various locations to meet clients. She acquired a car on 1 March 2020 for $57,000. The acquisition cost was funded entirely by a loan at an interest rate of 10%. She has determined that the depreciation deduction on the car would be $5,700 for the year. In addition, Anja incurred the following expenses during the year:

• Registration and insurance = $5,000;
• Repairs and maintenance = $300; and
• Oil and fuel costs = $4,100.

For the period 1 March 2020 to 30 June 2020, Anja estimates that the car travelled a total of 12,000 kilometres; 8,000 of which were for business purposes. You may assume that Anja has maintained all necessary records and a logbook. Assume that depreciation has been adjusted for partial year use and the impact of the car limit.

i. Calculate Anja's deduction for car expenses under "cents per kilometre" method 1.5 marks
ii. Calculate Anja's deduction for car expenses under log book method 1.5 marks
iii. Which method is preferable for Anja and why? 2 marks

Answer 1

Solutions:

(i)

“Cents per kilometre” method	s28-15 – Four methods
Number of business kilometres the  car travelled in the income year    x    Number of cents based on the car’s engine capacity	s28-25 – How to calculate
5 000 x 0.72	s28-25(2) – First 5 000 business kilometres only reg 28-25.01 of ITAR 1997 – Number of cents
$3 600

Note: Assumed that the car has 2600cc

(ii)

“Logbook” method	s28-15 – Four methods
Amount of each car expense x Business use percentage	s28-90(1) – How to calculate
Business use percentage: Business kms                                            Total kms	S28-90(3) – Business use percentage
Interest $1,884.4 Depreciation $5,700 Registration and insurance $5,000 Repairs and maintenance $300 Oil and fuel costs $4,100 x 8 000    12 000	57 000 x 0.1 x (121/366) = $1,884.4 S28-90(2) – Interest not deductible in full unless held for the whole income year.
$16,984.4 x .6667 = $11,323

(iii)

The Logbook method is preferable for Anja because of the following reasons:

• Anja's vehicle is new and depreciating fast.
• Anja oftenly use your car for business purposes.
• Anja's vehicle incurs high fuel and maintenance costs
• This vehicle has a good carrying capacity.