Car Expenses - Business Kilometres - Travel to Tax Agent

Can kilometres travelled by a taxpayer to consult with a tax agent be included in the 5000 business kilometre limit used for determining car expense deductions under Subdivisions 28-C and 28-D of the Income Tax Assessment Act 1997 (ITAA 1997)?

No, kilometres travelled by a taxpayer to consult with a tax agent cannot be included in the 5000 business kilometre limit used for determining car expense deductions under Subdivisions 28-C and 28-D of the ITAA 1997.

The employee taxpayer uses a tax agent to prepare their individual tax return.

The taxpayer travelled 4500 business kilometres in the income year.

The taxpayer estimates that approximately 600 kilometres were travelled in visiting the tax agent.

Subdivisions 28-C and 28-D of the ITAA 1997 outline two methods of calculating car expense deductions: Provision Method How the deduction is calculated Why 5000 business kilometres are important Subdivision 28-C Cents per Kilometre Business Kilometres x Number of cents per kilometre specified in the regulations A taxpayer can only use this method to claim a deduction if they have travelled 5000 business kilometres or less in the income year. Subdivision 28-D 12% of Original Value 12% x Cost of car when the taxpayer acquired/leased it A taxpayer cannot use this method unless they have travelled over 5000 business kilometres in the income year.

Provision | Method | How the deduction is calculated | Why 5000 business kilometres are important

Subdivision 28-C | Cents per Kilometre | Business Kilometres x Number of cents per kilometre specified in the regulations | A taxpayer can only use this method to claim a deduction if they have travelled 5000 business kilometres or less in the income year.

Subdivision 28-D | 12% of Original Value | 12% x Cost of car when the taxpayer acquired/leased it | A taxpayer cannot use this method unless they have travelled over 5000 business kilometres in the income year.

Business kilometres are defined (in subsection 28-25(3) and subsection 28-50(2) of the ITAA 1997) as being: '[The] kilometres the car travelled in the course of producing your assessable income. You calculate the number of business kilometres by making a reasonable estimate'

Any kilometres travelled by the taxpayer for visiting a tax agent are not for the purpose of producing assessable income and therefore cannot be taken into account in determining car expense deductions under Subdivisions 28-C and 28-D of the ITAA 1997. The taxpayer has therefore travelled less than 5000 business kilometres for the year and so is able to use the cents per kilometre method to calculate the car expense deduction.

However, expenses incurred in visiting tax agents may be deductible under section 25-5 of the ITAA 1997. Paragraph 25-5(1)(a) of the ITAA 1997 provides that a taxpayer can deduct expenditure they incur to the extent that it is for managing the taxpayer's tax affairs.

Taxation Determination TD 94/92 states that the cost of travelling for the purpose of having a tax return prepared by a 'recognised professional tax adviser', is expenditure in respect of the management of a taxpayer's tax affairs and an allowable deduction under section 25-5 of the ITAA 1997.

The amount allowable as a deduction for travelling to an agent is based on the taxpayer's calculation of the expense incurred. The method to be used is at the discretion of the taxpayer as long as it provides a reasonable estimate.

Therefore, the taxpayer's deduction for travel can be based on: • any of the four methods for calculating car expense deductions, or • any other method at the discretion of the taxpayer

provided they are able to prove that it is appropriate in the particular circumstances.