Q. A client operates a catering business as a sole trader. She uses a car that is registered in her husband’s name. Her husband is not involved in the business. Can she claim a deduction for the car expenses using the cents-per-kilometre method?
A. Section 28-12 of ITAA 1997 provides that a taxpayer may only claim a deduction for car expenses (using one of the four statutory methods) if the taxpayer “owned or leased” the car.
Since the client does not own or lease the car, she cannot claim a deduction for the car expenses using the cents-per-kilometre method (or any of the other three statutory methods). This view is confirmed by ATO ID 2001/420 (the ID was withdrawn, but only because it was a straight application of the law). However, the client is entitled to claim a deduction under s 8-1 of ITAA 1997 for the actual costs she incurs, eg for fuel, oil and general maintenance, on the basis that those expenses are incurred in producing her assessable income (or are necessarily incurred in carrying on a business for the purposes of producing assessable income).
The Tax Office will treat a person who is not the registered owner of the car as the owner or lessee where a family arrangement effectively makes that person the owner or lessee of the car (and thus they will be able to claim expenses using the cents-per-kilometre method). An example is where a family car is given to a person as a birthday present and, although it is not registered in their name, they use the car as their own and pays for all the expenses. See www.ato.gov.au/individuals/content.asp?doc=/content/16377.htm&page=2&H2
This issue appeared recently in Thomson Reuters Tax Q&A. Tax Q&A is issues based and uses actual scenarios confronted in practice to help you understand how developments affect your client’s tax position. New Q&As are added regularly and the answers provided online are updated to take into account tax changes that impact on the issues raised.
It therefore provides an up-to-date database of real solutions to actual tax issues facing tax advisers in practice. To find out more click here.