Guide to car tax deductions in Australia
Car expenses are among the most commonly claimed work-related tax deductions in Australia, but many are still unclear on what they can and can’t actually claim.
- The ATO allows eligible taxpayers to claim a deduction for the work-related portion of car expenses (e.g. fuel, insurance, interest on car loan).
- You can generally claim trips made in the course of earning income (e.g. travel between workplaces, client visits).
- You generally cannot claim the cost of commuting between home and your regular workplace.
- You can use either the cents per kilometre or the logbook method when claiming car expenses.
Will Davies, co-founder of peer-to-peer car-sharing platform Car Next Door, which was later rebranded as Uber Carshare before being discontinued, said many people still trip up over car-related expenses.
"Many car owners don't know about all of the deductions they could be claiming," Mr Davies said.
In Australia, car owners can generally claim deductions for expenses related to income generation such as taking work-related trips or renting their cars out through a car-sharing platform.
See also: Costs of owning a car in Australia
How to claim deductions on work-related car trips
The Australian Taxation Office (ATO) generally allows eligible car owners (you need to be able to prove you own the vehicle) to claim deductions for work-related car travels using two methods.
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Cents per kilometre method
The cents per kilometre method allows you to claim a fixed rate for each kilometre travelled to perform your work duties.
- You can claim up to 5,000 work-related kilometres per car each year.
- You don't need receipts for running costs (e.g. fuel) but you must be able to show how you calculated your work-related kilometres.
- The ATO sets a cents-per-kilometre rate each financial year; check its website for the latest rate.
Logbook method
The logbook method allows car owners to claim work-related percentage of eligible car expenses. These can include fuel, registration, insurance, servicing, repairs and depreciation.
To calculate deductions using this method, you generally need to:
- Keep a logbook that records your work-related travel over a continuous 12-week period and your odometer records.
- Keep receipts and other written evidence of your expenses.
Whether you use the cents per kilometre or the logbook method, you'll need to keep accurate records and be able to substantiate your claim if the ATO requests evidence.
Always keep records
One of the most common mistakes car owners make is claiming car costs using the ATO’s cents-per-kilometre method without the records to back them up.
You can claim up to 5000 kilometres a year but this is not a ‘free pass’ – you must be able to provide evidence.
If you rent your car out, the car-share platform should be able to provide you with a summary of all of the kilometres driven during bookings, to make it easy to claim.
What car expenses can you claim under ATO rules?
Per ATO rules, if you use your personal car in the course of earning your income, you may be able to claim a deduction for the work-related portion of:
- Fuel and oil costs
- Registration fees
- Insurance premiums
- Repairs and maintenance
- Servicing and cleaning costs
- Interest on a car loan
- Lease payments (if applicable)
- Depreciation (decline in value) of the car
See also: How do I calculate car depreciation
Claim a deduction for your car’s depreciation
Many car owners forget to include depreciation when they’re adding up their annual car expenses at tax time.
If you use your car for work or rent it out, ask your accountant about how you should calculate depreciation as it may add thousands to your allowable deductions.
Work-related trips you can claim
- Travel between two separate workplaces (e.g. working in two retail stores)
- Travel from your regular workplace to a client's office or another work site
- Travel from home to an alternative workplace (e.g. home to a training venue)
- Travel to meetings, training courses, conferences or events required for work
- Transporting bulky tools or equipment (subject to ATO conditions)
In transporting tools and equipment, Mr Davies said workers should be careful when claiming deductions.
"If you can't prove this is required by your employer or there's no safe place to store your equipment at work, then it's not claimable," he said.
What car expenses can't you claim under ATO rules?
The ATO generally does not allow deductions for the following costs incurred:
- Purchase price of the car itself
- Principal payments on a car loan
- Car expenses paid for or reimbursed by your employer
- Expenses related to salary-sacrificed or novated lease vehicle
"Be careful not to 'double dip' on car expenses – you can't claim expenses that have already been paid for by your employer, including salary sacrificing arrangements," Mr Davies said.
See also: A beginner's guide to salary sacrificing
Can you claim travel between home and work?
The ATO does not allow deductions for costs incurred during normal commuting between your home and your regular workplace. This rule applies even if you:
- Live a long distance from your workplace
- Have no available public transport
- Do some work at home
- Are on call or on standby
- Are working outside normal hours (e.g. overtime)
- Are doing minor work-related tasks (e.g. picking up mail)
"[Home-to-workplace travel] isn't claimable, even if you do a small work-related task," Mr Davies stressed. "Even if there's no public transport available when you head home after working overtime, it's not claimable either."
Peer-to-peer car sharing tax deductions
Before you start whipping out the calculator to work out the deductions you can claim, bear in mind that if you earn by renting out your car through a peer-to-peer car sharing platform, the ATO requires you to declare that income in your tax return.
With that said, here are some expenses you may be able to claim as deductions when earning income through car-sharing activity:
- Membership fees charged by the car-sharing platform
- Availability fees or penalties incurred under the platform's sharing requirements
- Car expenses allowed under ATO rules (e.g. fuel, registration, repairs)
"You can only claim a deduction for a car that you own or lease. For example, you can't claim car expenses for an employee vehicle under a salary-sacrificed novated lease," the ATO said.
See also: Novated Leases Explained
Savings.com.au's two cents
Cars are a depreciating asset, and if you use your personal vehicle for work, that wear and tear can add up over time.
This makes claiming a tax deduction for eligible work-related car expenses worthwhile. It can help offset the costs of using your car to earn income.
Just remember that not all trips are deductible, so it's important to keep accurate records and only claim expenses you're entitled to. If you're unsure, consider seeking advice from a registered tax professional.
