Suitable for: Anyone who incurs car hire expenses and would like to know how they are treated in their income tax returns
Tax Difficulty: Beginner
Airtax Experience: Anyone, particularly rideshare drivers
Time to read: 2-4 minutes
Treatment of car hire in income tax returns
When hiring or leasing a car for business purposes, there are a few things to keep in mind. If your hire car arrangement is a straightforward arrangement where you pay a fee to use the car for a period of time and do not take any ownership rights of the car you may be able to claim this expense in your BAS and/or income tax return.
If you are registered for GST
You can claim the hire car expense in your BAS if it meets the rules for claiming a GST credit, in particular, if it was an expense paid during the period in relation to earning your business income and it included GST. If this hire expense did not include GST, it cannot be claimed in the BAS.
For income tax purposes you can choose between two methods of claiming car expenses: the cents per km method, or the log book method.
If you are hiring a car under a hire purchase arrangement where you purchase the car through instalment payments while you are using the car, the rules are a little different. If you entered into the hire purchase agreement on or after 1 July 2012, you can claim input tax credits up front instead of waiting until each instalment is paid. This would mean that you report the full cost of the car in the BAS when the first payment is made and not for any subsequent payments.
It is important to properly identify the type of hire/lease arrangement you have entered into as the tax consequences depend on the specific arrangement.
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This document merely provides a broad outline of the subject and is necessarily general in nature. If you require specific advice, which is tailored to your specific circumstances, please do not hesitate to contact us (fees would apply).