Private vehicle use - worked example

In Australia a business can only claim the percentage of vehicle use costs which are estimated to be business travel. The percentage based on a log book which has to be intermittently redone.

This percentage deduction could be done

  • When every expense is entered into Manager. Which is labor intensive without Manager support

  • Via an adjustment your accountant does at the end of each financial year. But that means Managers records are wrong most of the time.

For a sole trader another way is to create a “Motor Vehicle” expense group with the following accounts
01 COA

Create a “Profit and Loss report” with periods corresponding to the financial reporting intervals eg BAS quarters
02 P+L Edit screen

Post 100% of actual vehicle expenses to “Motor vehicle expenses” (with a GST 10% tax code) and 100% of stamp duty to “Motor Vehicle stamp duty” (with a tax code of GST Free)

Then at the end of the reporting period / BAS quarter, open the above profit and loss report in one window

In another window, go to your journal entries tab and search for “Motor vehicle”

View the journal entry for the last quarter / the most recent motor vehicle private use adjustment

And clone it

Note in this example Private motor vehicle use is 44% ie Total x 0.44

Edit the journal entry for the quarter being processed by

  • Date to the end of the current quarter

  • Copy from the Profit and loss report for the quarter just ended, into the journal entry Narration the “Motor vehicle expense” and the “Motor Vehicle stamp duty”

  • Copy from the Narration the GST 10% private vehicle use to the first line item

  • Copy from the narration the GST free private vehicle use (stamp duty) to the second line item

  • Copy from the narration the sum of both to the third line item

  • Now vehicle expenses for the year and each quarter are accurate.

  • “Tax liability” shown in the “Tax Summary” report is accurate

  • Unfortunately you can not use the other figures directly in the “Tax Summary” and “GST Worksheet” as the Motor vehicle expense correction is reported as a Sale by Manager, artificially inflating the reported G1 (total sales) an issue particularly important at the moment with JobKeeper cost auditing likely. See Inconsistency in Tax-reporting

This is no longer the case as Journal entries now allow specification of a purchase adjustment, as applies in this case

Companies and trusts in Australia claim motor vehicle expenses fully but the private use is subject to Fringe Benefits Tax (FBT) based on the Operating Cost Method. FBT can be paid on the value of the benefits or an employee can make a GST inclusive contribution to cover the private usage. The employee contribution is calculated under FBT rules, not on the basis of Income Tax deductions available. You need to determine the FBT Base Value of the car to calculate deemed depreciation and deemed interest at the benchmark rate of interest for FBT purposes, irrespective of the finance arrangements on the car.