Deductibility of car expenses incurred in maintaining investment properties using the 12 per cent of 'original value' method

Is the taxpayer entitled to a deduction for car expenses incurred in maintaining and inspecting an investment property using the '12% of original value method' under section 28-12 of the Income Tax Assessment Act 1997 (ITAA 1997)?

No. The taxpayer is not entitled to a deduction for car expenses incurred in maintaining and inspecting an investment property using the '12% of original value method' under section 28-12 of the ITAA 1997.

The taxpayer owns investment properties.

The taxpayer owns the car they use to travel to the investment properties.

They have a managing agent to collect the rent and lease the properties. The managing agents are instructed to contact the taxpayer if a problem arises. The taxpayer then inspects the property to determine whether they can fix the problem before consulting a professional.

A reasonable estimate of the taxpayer's travel to inspect and maintain the investment properties is less than 5000 km in the income year.

Section 28-12 of the ITAA 1997 allows a deduction for car expenses using one of the four methods under Division 28 of the ITAA 1997.

Subdivision 28-C of the ITAA 1997 sets out how to calculate a car expenses claim using the 12% of 'original value' method.

Subsection 28-50(1) of the ITAA 1997 states that this method can only be used if the taxpayer travels more than 5000 business kilometres or would have if the car either ceased to be used or was first used in the income year. 'Business kilometres' is defined in subsection 28-50(2) of the ITAA 1997 as the kilometres the car travelled in producing the taxpayer's assessable income. The business kilometres travelled can be calculated by making a reasonable estimate.

The taxpayer's travel to maintain and inspect the investment properties they own has been incurred in connection with gaining income from these investment properties and is therefore considered to be business kilometres travelled.

However, the taxpayer's reasonable estimate of business kilometres travelled is less than 5000 kilometres in the income year. Consequently, the taxpayer would not be entitled to a deduction for the car expenses using the '12% of original value' method under section 28-12 of the ITAA 1997.