The Treasurer announced in the 2015/16 Budget that the methods used for calculating work-related car expense deductions under Div.28 of the ITAA 1997 would be simplified and modernised. An exposure draft of the amendments has been released for public consultation.

Currently, taxpayers have an option to use one of four methods to determine their work-related car expense deductions. The government is proposing to reduce the number of methods by removing the ‘12% of original value method’ and the ‘one-third of actual expenses method’. These methods have been used by fewer than 2% of those who claim work-related car expenses. The other two methods, the ‘cents per kilometre method’ and the ‘logbook method’ are being retained.

The ‘cents per kilometre method’ is also being changed by replacing the three current rates based on engine size with one rate set at 66 cents per kilometre, which applies to all motor vehicles. The Commissioner of Taxation will have responsibility for updating the rate in later income years.

The government says that these changes will enable taxpayers who drive electric and hybrid vehicles to claim on a cents per kilometre basis, which is not currently an option for them. These amendments apply to the 2015/16 income year and later income years.

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