Car Expenses - taxpayer does not own or lease the motor vehicle

Is the taxpayer entitled to claim a deduction under section 28-12 of the Income Tax Assessment Act 1997 (ITAA 1997) for car expenses using the cents per kilometre method when they do not own or lease the car?

No, the taxpayer is not entitled to claim a deduction under section 28-12 of the ITAA 1997 for car expenses using the cents per kilometre method when they do not own or lease the car.

The taxpayer incurred car expenses for the purposes of earning assessable income.

The taxpayer does not own or lease the car and the taxpayer did not contribute financially to its initial purchase.

Section 28-12 of the ITAA 1997 provides that a deduction for car expenses can be made using one of 4 methods if the taxpayer owned or leased a car or hired a car under a hire purchase agreement.

Normally a car will be registered in the name of its owner. However, a taxpayer may be considered to be the owner or lessee of a car where a family or private arrangement makes them the owner or lessee even though they are not the registered owner.

A taxpayer can prove ownership of the car by demonstrating their financial contributions to any of the following: • The initial purchase of the car • Lease payments • Hire purchase agreements; or • Loan payments.

A taxpayer may not be considered to own or lease the car if they do not contribute to the payment of one of the above, even though the taxpayer pays for expenses such as registration, insurance, maintenance or other running costs. This does not prevent the taxpayer from claiming a deduction for the expenses they pay, but they cannot use one of the four car expenses methods in doing so.

As the taxpayer did not contribute financially to the purchase, lease, hire purchase or loan payments on the car, they are not considered to own or lease the car and accordingly cannot claim their car expenses using the cents per kilometre method.