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DE 1: What this subpart does
or “This subpart explains how to calculate business use of a personal vehicle”
You could also call this:

“How to claim deductions for business use of your car”

You can get a deduction for using your car for business. This includes money you spend on the car for business use, interest on money you borrowed to pay for the car’s business use (if you’re a close company), and wear and tear on the car from business use.

You can choose how to work out this deduction. You can use the ‘costs method’ or the ‘kilometre rate method’.

For the costs method, you calculate your deduction by multiplying your expenses by the proportion of business use. You work out the business use proportion using rules in sections DE 3 to DE 11.

The deduction for wear and tear (depreciation) is usually calculated by multiplying the standard depreciation amount by your business use proportion. There are special rules if you sell the car or start using it for business in the same year you bought it.

If you sell the car, you might get a deduction for the loss in value. How much you can deduct depends on how long you’ve owned the car and how much you’ve already claimed for depreciation.

This deduction is allowed under the general permission rule. It overrides the private limitation rule, but other general limitations still apply.

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Next up: DE 2B: Election to use kilometre rate method or costs method

or “Choosing how to calculate car expenses for business use”
Next

Part D Deductions
Motor vehicle expenditure

DE 2Deductions for business use

  1. A person is allowed a deduction for—

  2. expenditure that they incur for the business use of a motor vehicle:
    1. interest on amounts used to fund, directly or indirectly, expenditure the person incurs for the business use of a motor vehicle, if the person is a close company that has chosen to apply this subpart instead of the FBT rules, in accordance with section CX 17(4B)(c) (Benefits provided to employees who are shareholders or investors):
      1. an amount of depreciation loss for the business use of a motor vehicle.

        1. A person can choose under section DE 2B to calculate the total amount of the deduction described in subsection (1)—

        2. under subsections (2) and (4) (the costs method) by adding together—
          1. a deduction amount for expenditure, calculated under subsection (2); and
            1. a deduction amount for depreciation loss, calculated as described in subsection (4); or
            2. by using the kilometre rate method described in section DE 12.

              1. The amount of the deduction allowed in an income year for the expenditure for the business use of the vehicle is calculated using the formula—

                expenditure × business proportion.

                Where:

                • In the formula in subsection (2), business proportion is the proportion of business use of the motor vehicle for the income year, expressed as a decimal, calculated under sections DE 3 to DE 11.

                • The amount of the deduction allowed in an income year for the amount of depreciation loss for the business use of the vehicle is calculated—

                • using the formula in subsection (5), except in a case to which paragraph (b) or (c) applies; or
                  1. using the formula in subsection (8) if that subsection applies to the amount of depreciation loss; or
                    1. using the formula in subsection (11) if that subsection applies to the amount of depreciation loss.

                      1. The formula referred to in subsection (4)(a) is—

                        standard calculation × business proportion.

                        Where:

                        • In the formula in subsection (5),—

                        • standard calculation is the amount resulting from a calculation made for the motor vehicle under section EE 16 (Amount resulting from standard calculation):
                          1. business proportion is the proportion of business use of the motor vehicle for the income year (expressed as a decimal) calculated under sections DE 3 to DE 11.

                            1. Subsection (8) applies when—

                            2. the amount of depreciation loss results from a calculation made for the motor vehicle under section EE 48(2) (Effect of disposal or event); and
                              1. the person’s amount of depreciation loss for the motor vehicle was, at a time when the person owned it, calculated under subsection (5).

                                1. The formula referred to in subsection (4)(b) is—

                                  disposal depreciation loss × all deductions ÷ (base value − adjusted tax value).

                                  Where:

                                  • In the formula in subsection (8),—

                                  • disposal depreciation loss is the amount resulting from a calculation made for the vehicle under section EE 48(2):
                                    1. all deductions is all amounts of depreciation loss relating to the vehicle for which the person has been allowed a deduction in each of the income years in which the person has owned the vehicle:
                                      1. base value has the applicable one of the meanings in sections EE 57 to EE 60 (which relate to base value):
                                        1. adjusted tax value is the vehicle’s adjusted tax value on the date on which the disposal or event occurs.

                                          1. Subsection (11) applies when—

                                          2. the amount of depreciation loss results from a calculation made for the motor vehicle under section EE 48(2); and
                                            1. the motor vehicle starts to have a business use in the same income year as that in which the amount of depreciation loss arose.

                                              1. The formula referred to in subsection (4)(c) is—

                                                disposal depreciation loss × business proportion.

                                                Where:

                                                • In the formula in subsection (11),—

                                                • disposal depreciation loss is the amount resulting from a calculation made for the vehicle under section EE 48(2):
                                                  1. business proportion is the proportion of business use of the vehicle for the income year calculated under sections DE 3 to DE 11, expressed as a decimal.

                                                    1. This section supplements the general permission and overrides the private limitation. The other general limitations still apply.

                                                    Compare
                                                    Notes
                                                    • Section DE 2(1)(ab): inserted, on (applying for the 2017–18 and later income years), by section 73(1) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
                                                    • Section DE 2(1B) heading: inserted, on (applying for the 2017–18 and later income years), by section 73(2) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
                                                    • Section DE 2(1B): inserted, on (applying for the 2017–18 and later income years), by section 73(2) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
                                                    • Section DE 2(3): amended, on (applying for the 2017–18 and later income years), by section 73(3) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
                                                    • Section DE 2(6)(b): amended, on (applying for the 2017–18 and later income years), by section 73(4) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
                                                    • Section DE 2(12)(b): amended, on (applying for the 2017–18 and later income years), by section 73(5) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).