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‘Double Dip’ For Employees Claiming Motor Vehicle Expenses Reimbursed By Their Employer

Employees can have their work related motor vehicle expenses paid or reimbursed by their employer. They can also claim a deduction under the ‘cents per kilometre’ method, without that deduction being reduced because of their employer having paid or reimbursed those expenses.

This ‘double dipping’ is a very unusual situation as section 51AH of the ITAA 1936 normally prevents a deduction being claimed for reimbursed expenses. This is logical and prevents double deductions being claimed for the one expense.

However, in this case an extra deduction (or double dip) is possible under subdivision 28-C of the ITAA 1997 using the cents per kilometre method. The deduction allowed under these provisions is not an actual loss or outgoing incurred by the taxpayer, but rather a deemed motor vehicle expense deduction.

Below is an example of the savings in practice:

Jack is a sales consultant who uses his motor vehicle for visiting clients. He keeps a valid log book showing 60% work use for his motor vehicle and his motor vehicle expenses which includes depreciation, fuel, insurance, registration, and repairs total $8,000 for the year. Jack’s employer reimburses him $4,800 for his actual work related motor vehicle expenses incurred.

This strategy allows Jack to also ‘double dip’ and claim a tax deduction of $3,300 in his personal tax return. Jack’s deduction is calculated by multiplying 5,000 business kilometres travelled for the year by the ATO allowed cents per kilometre deduction rate of $0.66 (This calculation is based on Jack doing at least 5,000 business km during the year in his motor vehicle).