Using your personal vehicle for work purposes is quite common in Australia, but many taxpayers miss out on claiming legitimate deductions simply because they’re unsure of the rules. If you’re using your own car to earn an income, understanding how to correctly claim your car expenses can reduce your tax bill and maximise your return.

At A Plus Accountant, we specialise in structure setup and small business tax advice across Australia. This guide will walk you through who can claim car-related deductions, which methods to use, and how to stay compliant with the ATO’s requirements.

Can You Claim Car Expenses on Your Tax Return?

To be eligible to claim car expenses, certain conditions must be met. The vehicle must fall under the ATO’s definition of a “car” and your use of it must relate directly to your income-earning activities.

What Counts as a Car?

A car, for tax purposes, is defined as a motor vehicle designed to carry fewer than 9 passengers (including the driver) and a load of less than one tonne. This includes petrol, hybrid and electric cars. However, motorcycles, scooters and larger commercial vehicles do not fall under this category and follow different rules.

Ownership or Lease Requirements

You must either own the vehicle outright, lease it, or have it under a hire-purchase agreement to be eligible. If you use a car under a novated lease or salary sacrifice arrangement through your employer, the running costs are generally not deductible to you since your employer is likely to be claiming them.

If the car technically belongs to a family member but you have a private agreement making you the effective owner or lessee, you may still be eligible to claim as long as you bear the expenses and are not reimbursed.

When You Can Claim

You can claim car expenses for work-related travel, including:

  • Travelling between different workplaces
  • Visiting clients or job sites during the workday
  • Attending work-related meetings or conferences

Trips from home to your regular place of work are not deductible, except in very limited scenarios (such as carrying bulky tools without secure storage at work).

Other Conditions

  • Out-of-pocket expenses only: You must have paid for the costs yourself and not been reimbursed by your employer.
  • Record-keeping is essential: The ATO requires appropriate documentation to support your claims.
  • Car allowance income: If your employer gives you a car allowance, you must declare this as assessable income.

Two Approved Methods to Calculate Car Deductions

There are two main approaches to calculating your car-related tax deductions in Australia:

  1. Cents per Kilometre Method
  2. Logbook Method

You can choose a different method for each car you use, and switch methods between income years depending on what suits your situation best.

1. Cents per Kilometre Method

This method is straightforward and ideal for those who use their car for work occasionally.

  • Multiply the number of kilometres you travelled for work by the set rate for the relevant financial year.
  • You can claim up to 5,000 work-related kilometres per vehicle.
  • If two people jointly own a car, each can claim up to 5,000 work kilometres for their own work-related use.

Rates by financial year:

  • 2024–25: 88 cents per kilometre
  • 2023–24: 85 cents per kilometre
  • 2022–23: 78 cents per kilometre
  • 2020–21 and 2021–22: 72 cents per kilometre

This method includes all car-related running costs such as fuel, servicing, insurance, registration and depreciation. You cannot separately claim any of these expenses on top.

Record-Keeping Tip: You don’t need to keep receipts for fuel or maintenance, but you must be able to show how you calculated your kilometres. Use a logbook, diary entries or digital apps to track your work-related trips.

2. Logbook Method

This method is more detailed and suitable for those who use their car heavily for work. It allows you to claim a proportion of actual expenses based on your work-related usage.

Steps to Follow:

  • Keep a logbook for at least 12 continuous weeks. It must be representative of your usual work travel.
  • Log each trip with:
    • Date
    • Start and end odometer readings
    • Purpose of the trip
    • Destination
  • Record your total kilometres travelled and work-related kilometres.
  • The logbook remains valid for up to five income years, as long as your work and travel habits remain consistent.

You’ll also need receipts or documents for:

  • Fuel and oil (or estimates using odometer readings)
  • Registration
  • Car insurance
  • Servicing and repairs
  • Loan interest or lease payments
  • Battery charging (for electric vehicles)
  • Tyres and other running costs

You must also keep records of the purchase price of the car and how you calculate depreciation.

How to Work Out Your Deduction:

  1. Calculate your total kilometres during the logbook period.
  2. Work out your work-related kilometres.
  3. Divide work kilometres by total kilometres to get a percentage.
  4. Add up your actual expenses for the year.
  5. Multiply the total expenses by the percentage to get your deduction.

Important: You cannot claim the cost of buying the car, repayments of principal on loans, or improvements like paint protection or upgraded rims.

Electric and Hybrid Car Considerations

As electric vehicles become more popular, the ATO has issued updated guidance on how to claim running costs using the logbook method.

For Electric Vehicles (EVs):

  • Keep receipts for commercial charging stations.
  • You can use a 4.2 cents per kilometre rate for home charging as a reasonable estimate instead of calculating electricity usage from bills.
  • If using the 4.2c/km rate for home charging, you cannot also claim receipts for public charging.

For Hybrid Vehicles:

  • You must retain fuel and oil receipts, as well as documentation for both charging station use and home charging costs.
  • The 4.2c/km home charging rate does not apply to hybrids.

Final Thoughts

Choosing the right method and keeping accurate records are both essential to successfully claiming car expenses on your tax return. Whether you’re self-employed, a contractor, or an employee who travels for work, making the most of this deduction could lead to significant tax savings.

At A Plus Accountant, we work closely with individuals and small businesses across Australia to ensure they meet their tax obligations while maximising their entitlements. If you’re unsure about how to approach your car expense claims or whether your current structure is optimised for tax efficiency, get in touch with our team today.

Need help with your car expense claims?

Disclaimer: This guide provides general information only and does not constitute personalised tax advice. Please speak with a registered tax agent or qualified accountant to ensure your specific circumstances are considered.