Actual cost method

The actual cost method

The actual cost method is where you claim expenses based on actual receipts.

You must use this method to calculate motor vehicle expenses if your business is a:

• company or trust, regardless of the type of vehicle you're claiming for
• sole trader or partnership, if you are claiming for other vehicles such as a motorcycle or a van.

Understand the expenses you can claim and remember you need to keep all records to substantiate your claims.

You can only claim the percentage of the actual costs that relate to business use of the vehicle. Therefore, if a vehicle is used for both business and private purposes, you must separate private from business use and keep records that allow you to work out the business use percentage.

If you are providing a vehicle to an employee, shareholder or an associate (such as a spouse), there can be tax implications – see Motor vehicles used by shareholders of private companies.

Depreciation of the motor vehicle

If you work out your deduction for expenses using the actual cost method, then you can generally claim a deduction for capital expenses, such as the purchase price of a motor vehicle, over a period of time. This is known as depreciation or a decline in value.

You may be eligible for an immediate deduction or an accelerated rate of depreciation under one of the tax depreciation incentives. – see Interaction of tax depreciation incentives.

If the business vehicle is a car, there’s a limit on the amount you can use to work out your depreciation claim, see Car cost limit for depreciation.