ATO mileage reimbursement guide

Welcome to our guide to mileage reimbursement and deductions in Australia. Here, you'll find a collection of articles that will help you navigate the rules of reimbursing employees for their car expenses or deducting expenses as an employee or self-employed individual.

As an employee, self-employed, or a business owner you have the right to be reimbursed or deduct expenses related to business driving with your own vehicle. The ATO issues a cents per km rate each year that aims to regulate and simplify the reimbursement of car expenses for business-related driving.

Mileage reimbursement rules

Depending on your employment situation, there are different methods you can receive compensation for your business driving. Read on to see what methods apply to you and how to choose the best one.

Firstly, there are general rules set by the ATO that you need to be aware of.

The ATO cents per km rate

The cents per km rate is set each year by the ATO. The newly confirmed rate for the 2022/2023 tax year is $0.78 per business-related kilometre.

The rate is meant to cover all expenses of owning and running your vehicle for the business portion of its use.

Eligible vehicles

The ATO defines a car eligible for mileage reimbursement as a motor vehicle (excluding motorcycles and similar vehicles) designed to carry a load of less than one tonne and less than nine passengers. You might be able to receive reimbursement for your business-related driving with vehicles that don’t fall within the above definition. Read on based on your situation to find out how.

Work-related travel

The ATO defines work-related driving that you can be reimbursed for. Some examples include:

• Attending meetings or conferences away from your usual workplace
• Collecting supplies or delivering items
• Travel directly between two separate places of employment (for example, if you have a second job)
• Travelling from your usual workplace or home to an alternative workplace (for example, a client’s office or worksite)
• If your work can be classed as “itinerant work” – for example, if your job regularly requires you to work at more than one location each day before going home

Commuting from home to work is generally not claimable, but there are some limited exceptions.

For employees

As an employee in Australia, you might receive a car allowance from your employer for work-related car expenses, or you might be reimbursed on a cents per kilometre basis by your employer for those expenses.

While your employer decides on the scheme they use for reimbursing your work-related car expenses, there are general rules set by the ATO that have to be considered.

If you own or lease the vehicle you drive for business, there are two common options of reimbursement (depending on which your employer prefers).

Vehicle types

Your employer can select a reimbursement scheme no matter the type of vehicle you drive for work. However, if you deduct your motor vehicle expenses, you need to be aware that the ATO has different rules for cars and other motor vehicles. Read more about deducting work-related car expenses.

Cents per km

Your employer can use the ATO cents per km rate for business travel instead of having you record all your expenses. This way, the only extra expenses you might need to record are things like parking costs and road tolls, rather than every cost associated with owning and driving your car.

As long as your total reimbursement amounts to that year’s ATO cents per km or less, your reimbursement is not taxed as income.

Car allowance

Your employer might offer you a car allowance - it is an allowance meant to cover the need for a company car. You can use the ATO car allowance to purchase a car or maintain your current one.

An ATO car allowance is paid upfront, and the amount is set by your employer. This allowance is considered a benefit, is to be paid towards your salary and taxed accordingly.

Note that the car allowance is not meant to replace reimbursement for your work-related car expenses. You will still be able to claim these on your annual tax return.

Check our For employees guide to learn more about the differences between a car allowance and a cents per km reimbursement.

If your employer doesn’t provide a reimbursement scheme

In case your employer doesn’t reimburse you at the cents per km rate for business-related travel expenses, even if they provide a car allowance, you will be able to claim deductions from the ATO.

For sole traders

As a self-employed individual who has work-related car expenses, you can claim a deduction on your annual tax return.

There are three methods of calculating your claim for tax deduction purposes:

• The cents per kilometre method
• The logbook method
• The actual costs method

The ATO cents per km method

The simplest method of claiming business-related driving is by using the ATO cents per km rate set by the ATO each year. All you have to do is keep track of the kilometres you drive throughout the year, and multiply them by the corresponding year’s cents per km rate. Keep in mind you can claim up to 5000 km per year with this method.

The logbook method

With the logbook method, you can claim your business travel expenses without any upper limit in kilometres, so long as they are business related. However, it requires more involvement than the simple cents per km method. This method can only be used by sole traders or partnerships claiming deduction for a car. To work out the amount you can claim, you need to:

• Keep a logbook of all journeys
• Work out the percentage of business use for your car
• Keep track of your total work-related car expenses for the year

Claim the percentage of expenses that corresponds to the percentage of kilometres throughout the year you've driven for business purposes.

The actual expense method

The actual expenses method can be used by companies and trusts, or sole traders and partnerships claiming business-related kilometres for vehicles other than a car. To use this method, you need to keep receipts of all expenses for your vehicle and the annual number of kilometres you drive, same as with the Logbook method. Work out your tax claim by figuring out the percentage of business use for the year. E.g. if 60% of your driving is for business, you can claim 60% of the car’s actual expenses.

Learn more about each of the methods in our dedicated guide for sole traders.

How to calculate the percentage of business-related driving

If you drive your car for both business and private purposes, you need to work out the percentage of use that is for business, employees and sole traders alike.

To work out the business use in per cent, use the following calculation:

Let’s say you have driven a total of 6000 kilometres, 4500 of which are work-related. Divide the business kilometres by the total number of kilometres driven, then multiply by 100

4500 business km / 6000 total km = 0,75
0,75 x 100 = 75%
In this example, the car was driven for business purposes 75% of the time

Keeping compliant logs for your reimbursement

You generally need to be able to show how you have worked out your business driving and the reimbursement or deduction you should receive. However, the logs you need to keep depend on your situation.

As an employee, your employer will define the details you need to log for your driving. This will depend on the method you are reimbursed at, and the documents your employer needs for bookkeeping.

As a sole trader, it will again depend on the method you use for deducting work-related car expenses.

• If you use the cents per km method, you don’t need to keep logs but you have to be able to show how you’ve worked out your business use and deduction should the ATO require it.
• If you use the logbook method you will have to note down your driving quite extensively, including each trip you take, purpose, date, odometer readings at the start and end of each trip and more. See our dedicated logbook requirements guide to find out everything you need to record in your logbook.
• The actual expense method requires you to keep track of all driven kilometres and the percentage of business use. You will also have to keep all receipts related to your car expenses.

Finally, remember to keep your logs and receipts for 5 years.

Not located in Australia? Check out our other guides here:

- Mileage guide for the US (IRS mileage guide)
- Mileage guide for Canada (CRA mileage guide)
- Mileage guide for the UK (HMRC mileage guide)
- Mileage guide for Denmark 
- Mileage guide for Sweden

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