UPDATED FEB 22, 2021 • 5 MIN READ
Individuals and companies alike are able to claim their work-related car expenses as deductions when completing their tax returns with the ATO.
This guide is intended to help you understand what options are available, and which is the right option for you
If you are an employee or self-employed (as a sole trader or partnership) and looking to calculate your work-related car expenses from your tax return, you can use either the cents per km method or the logbook method.
The actual costs method must be used by companies looking to deduct their business-related car expenses. If you are self-employed (as a sole trader or partnership), you also must use the actual costs method to claim expenses for vehicles that are not classed as a car - that is, a vehicle designed to carry a load of more than one tonne, or to carry more than nine people, or a motorcycle.
That might all sound a little complicated, but don’t worry. We’ll break down each of the methods below, starting with the simplest option - the cents per km method.
The cents per kilometre method of calculating your car expenses is the easiest way to work out your deduction. Its only downside is the limit of 5000km business km per car per financial year.
The cents per km method provides a standard mileage rate, incorporating all of the costs of owning and operating a car. This includes the costs of registration and insurance, interest on a motor vehicle loan, lease payments, servicing your car, repairs, fuel costs, and depreciation - meaning if you use this method, you can’t also claim those expenses over and above the cents per km rate when calculating your tax deduction.
The rates are set for each financial year - the 2020/2021 Cents per Kilometre rate is set at $0.72 per business km.
Remember, you need to calculate the percentage of kilometres that you’ve driven for work over the financial year. The ATO has a guide to what counts as “work-related car expenses” which we recommend reading. It’s important to only claim deductions for eligible expenses, as the ATO does audit these claims and can request evidence to support them.
We’ve written up a guide to calculating your mileage deduction - you can find it here.
Try our ATO-compliant logbook app for free.
The logbook method of calculating your work-related car expenses requires a little more work but can add up to a higher deduction - especially if you drive over 5000km business kilometres in a financial year.
Using the logbook method, your claim is based on the work-related percentage of your car expenses. These expenses include registration, insurance, interest on a motor vehicle loan, lease payments, maintenance, repairs, fuel costs, and depreciation.
Be aware that you aren’t able to claim “capital costs” like the purchase price of your car, the principal required for a loan, or any costs related to improving the car (like window tinting).
As with the cents per km method, you will need to calculate the percentage of your total kilometres that are work-related. Unlike the cents per km method, you will need to be able to show a logbook for a period covering at least 12 consecutive weeks, and if your driving fluctuates across a year, many people suggest maintaining a logbook year-round for the best chance of a higher deduction.
You will also need to provide written evidence (eg receipts and/or invoices) for all of your car expenses, except for fuel and oil which can be estimated based on your odometer readings from the start and end of the logbook period if you don’t have receipts for your actual expenses. For more information on the record-keeping requirements, have a read of our guide to Mileage Log Requirements here.
The same guide from above will help you to work out what you’re entitled to when you use the logbook method - once again, you can find it here.
The actual costs method is similar to the logbook method, with stricter recording requirements. There are two main differences between the two. Firstly, reporting your expenses using actual costs requires receipts for all expenses - including fuel and oil. Secondly, a logbook must be consistently maintained, as you must keep records that allow you to calculate the percentage of travel that was for business vs personal use.
In all other areas, the method of calculating your expenses using the actual costs method is identical to the logbook method. If you follow the link above, the guide will show you how.
To make sure that your car expenses are eligible for a tax deduction, your travel needs to be specifically for your work. Some examples of work-related travel include:
Keep in mind that travel from home to work is generally not claimable, with limited exceptions. For example, if:
The short answer is, if your employer has reimbursed you for your car expenses, you will not be able to claim them as deductions in your tax return. This aims to prevent double-dipping, as an employer who reimburses your expenses is entitled to claim the relevant deductions themselves.
The exception is if you receive a car allowance rather than being directly reimbursed for your specific car expenses. This is because an allowance is treated as taxable income, similar to your salary. If you receive an allowance, you can still follow one of the methods above to claim your tax deduction.
That's it for our guide on the basics of how to claim a tax deduction for your work-related car expenses in Australia. We hope we've been of assistance :)
This material has been prepared for general informational purposes only, and should not be taken as professional advice from Driversnote. You should consider seeking independent legal, taxation, or financial advice from a professional to check how this information relates to your own circumstances. Relevant laws also change from time to time.