Bookkeeping for Tax Compliance
Taking a correct photo of a receipt
Keeping a Motor Vehicle Log Book
If you use the logbook method, you:
- can claim the business-use percentage of each car expense, based on the logbook records of your car’s usage
- must keep a logbook so you can work out the percentage
- must have written evidence of your fuel and oil costs, or odometer readings on which your estimates are based
- must have written evidence for all your other expenses.
At the end of the income year, Tim’s logbook shows he travelled a total of 11,000 kilometres, of which 6,600 were for business.
To work out the percentage the car was used for business purposes, Tim made the following calculation: 6,600/11,000 × 100 = 60%
Tim’s total expenses, including depreciation, are $9,000 for the income year. To work out how much he could claim, Tim completed the following calculation:
$9,000 × 60% = $5,400
Valid for five years
Each logbook you keep is valid for five years, but you may start a new logbook at any time.
If you establish your business-use percentage using a logbook from an earlier year, you must keep that logbook and maintain odometer readings in the following years.
Your first year
If this is the first year you have used the logbook method, you must keep a logbook during the income tax year for at least 12 continuous weeks. That 12-week period needs to be representative of your travel throughout the year.
If you started to use your car for business purposes less than 12 weeks before the end of the income year, you can continue to keep a logbook into the next year so it covers the required 12 weeks.
Two or more cars
If you want to use the logbook method for two or more cars, the logbook for each car must cover the same period. The 12-week period you choose should be representative of the business use of all cars.
Information your logbook must contain
Each logbook you keep must contain the following information:
- when the logbook period begins and ends
- the car’s odometer readings at the start and end of the logbook period
- the total number of kilometres the car travelled during the logbook period
- the number of kilometres travelled for each journey recorded in the logbook (if you made two or more journeys in a row on the same day, you can record them as a single journey). You will need to record:
the start and finishing times of the journey
odometer readings at the start and end of the journey
reason for the journey.
- the business-use percentage for the logbook period.
What is work related travel?
The following are example of work related travel:
Travel between home and work: A deduction is not allowable for the cost of travel between home and the normal work place as it is generally considered to be a private expense. This principle is not altered by the performance of incidental tasks en route. The principle is also not altered if the worker is required to have a car available at work, uses a car because using public transport is impracticable, or is required to travel to work outside normal hours.
Travel between home and work – transporting bulky equipment: A deduction is allowable if the transport expenses can be attributed to the transportation of bulky equipment rather than to private travel between home and work. A deduction is not allowable if the equipment is transported to and from work by the building worker as a matter of convenience. A deduction is not allowable if a secure area for the storage of equipment is provided at the workplace.
Travel between home and work where home is a base of operations and work is commenced at home: A deduction is allowable for transport expenses if they can be attributed to travelling on work, as distinct from travelling to work, i.e., where the worker’s home is used as a base of operations and his or her work has commenced before leaving home.
Travel between home and shifting places of work: A deduction is allowable for the transport expenses incurred in travelling between home and shifting places of work, where the building worker is required by the nature of the job itself to do the job in more than one place. The mere fact that a worker may choose to do part of the job in a place separate from that where the job is located, is not enough.
Travel between two separate work places if there are two separate employers involved: A deduction is allowable for the cost of travelling directly between two places of employment.
Travel from the normal work place to an alternate work place while still on duty and back to the normal work place or directly home: A deduction is allowable for the cost of travel from the normal work place to other work places. A deduction is also allowable for the cost of travel from the alternate work place back to the normal work place or directly home. This travel is undertaken in the course of gaining assessable income and is an allowable deduction.
Travel from home to an alternate work place for work-related purposes and then to the normal work place or directly home: A deduction is allowable for the cost of travel from home to an alternate work place and then on to the normal work place or directly home.
Travel between two places of employment or between a place of employment and a place of business: A deduction is allowable for the cost of travel directly between two places of employment or a place of employment and a place of business, provided that the travel is undertaken for the purpose of carrying out income-earning activities.
Travel in connection with self education: You can claim the cost of daily travel from your home to your place of education and back to home or work to your place of education and back to work.
Telephone – Calculating work related %
You can claim a deduction for the cost of work-related phone calls you make.
If you also use your phone for private purposes, you can only claim that portion of your phone costs and calls that relate to your work-related use of the phone.
You may be able to identify your work-related calls individually on your itemised telephone account. If you do not receive itemised accounts, you can make a reasonable estimate of your call costs based on diary records you have kept over a minimum four-week period, together with your relevant telephone accounts.
Example: Sebastian uses his mobile phone for work purposes. He is on a set plan of $49 a month and rarely exceeds the plan cap.
Sebastian receives an itemised account from his phone provider each month by email that includes details of the individual calls he has made.
At least once a year, Sebastian prints out his account and highlights the work-related calls he made. He makes notes on his account for the first month about who he is calling for work – for example, his manager and his clients.
Out of the 300 calls he has made in a four-week period, Sebastian works out that 240 (80%) of the individual call expenses billed to him are for work and applies that percentage to his cap amount of $49 a month. The other two months that Sebastian reviews are consistent with this.
Since Sebastian was only at work for 46 weeks of the year (10.6 months), he calculates his work-related mobile phone expense deduction as follows:
10.6 months x $49 x 80% = $415.52
Is it ok to keep electronic records?
At present, you can record the information from your business transaction documents either electronically or manually, although, the ATO is encouraging the use of electronic systems.
The advantages of an electronic record keeping package are that it:
- helps you record your business transactions, including income and expenses,
- automatically tallies amounts and provides ready-made reporting,
- can produce invoices
- provide summaries and reports for GST and income tax purposes
- keeps up with the latest tax rates and tax laws, and rulings
- prevents loss of documents form fading
- requires less storage space
- allows you to back up records and keep back-ups in a safe place in case of fire, theft
- enables you to use your time more efficiently. When planning to use an electronic record keeping package make sure you choose a software package that meets your business needs and the ATO’s requirements. You may want to consult your tax adviser.
- flexible options for access to your data
- easily shared when required.
Cloud Computing vs Local Hard Drive
Cloud computing means storing and accessing data and programs over the internet instead of your computer’s hard drive. Your hard drive is referred to as local storage.
Bank Feeds vs No Bank Feeds
While many accounting products have the capability to feed data from your bank account directly into their software, this process is not advantageous to everyone.
Things you should be aware of are:
- Every transaction is transferred and recorded, including those that are personal, as well as business.
- You need to train your software to categorise all your transactions.
- If you have multiple accounts and transfers between them, this can confuse the software.
Bank feeds are not a time saver or suitable for everyone.
Single Entry vs Double Entry
Nearly all accounting products on the market are based on “double entry” bookkeeping. This means that for every record entered, a credit entry and an equivalent debit entry are created. Sometimes entries are made up of multiple credits and debits. This is what makes accounting processes complex and confusing to the untrained person.
Single entry, on the other hand, requires only one entry per record.
Solo Accounts is a single entry system and, in most cases, is all a sole trader needs for their record keeping.
Ask us or seek professional advice as to the suitability of either system.