What counts as a car?
The ATO's car rules apply only to a car: a motor vehicle designed to carry a load of less than one tonne and fewer than 9 passengers (including the driver). That includes electric, plug-in hybrid and hybrid vehicles, and many four-wheel drives and utes. It's the vehicle's design capacity that counts, not how you use it.
Vehicles outside the definition include motorcycles, minivans designed to carry 9 or more passengers, and utes, panel vans and trucks designed to carry one tonne or more. For these you can't use the cents per km or logbook methods. You claim the actual costs of the work or business use, supported by receipts and records showing how you worked out the work-use share.
The two methods for cars
If you're an individual (including a sole trader) or a partnership claiming for a car, you can choose either method. You can use a different method for each car and change methods from year to year.
1. Cents per kilometre method
- Rate: 88 cents per km for 2024–25 and 2025–26, and 91 cents per km for 2026–27
- Maximum of 5,000 work-related km per car each year
- The rate covers all running costs, including fuel, servicing, registration, insurance and depreciation, so you can't claim any of these on top
- No receipts are needed, but you must be able to show how you worked out your work km, for example with diary records of your work trips
Example: Sam, an employee, drove 3,200 work km in 2025–26 visiting clients. His claim is 3,200 × $0.88 = $2,816. Had he driven 6,500 work km, the claim would stop at 5,000 km (5,000 × $0.88 = $4,400), and he'd need the logbook method to claim more.
2. Logbook method
- No cap on kilometres: you claim the business-use percentage of the car's actual costs
- Costs include fuel, servicing, tyres, registration, insurance, interest on a car loan, lease payments and decline in value (depreciation)
- Business-use percentage = work km ÷ total km for the logbook period
- You need written evidence for every expense except fuel and oil, which you can work out from receipts or estimate from your odometer records
Example: Priya's logbook shows 62% business use. In 2025–26 she drove 20,000 km and her car costs were fuel $3,400, insurance $1,250, registration $900, servicing and tyres $1,150, loan interest $1,800 and decline in value $5,500, a total of $14,000. Her claim is 62% × $14,000 = $8,680. Under the cents per km method her 12,400 work km (62% of 20,000) would be capped at 5,000 km, giving only $4,400.
Logbook requirements
In the first year you use the logbook method, keep a logbook for at least 12 continuous weeks that's representative of your travel across the year. It must record:
- The start and end dates of the logbook period
- Odometer readings at the start and end of the logbook period
- The total km travelled during the logbook period
- For each work journey: the start and end dates, the odometer readings at the start and end, the km travelled and the reason for the trip
- The business-use percentage for the logbook period
A logbook can be used for up to 5 years, as long as you record odometer readings at the start and end of each year you rely on it. Start a new one if your work travel changes (for example, a new job or role). If you claim for more than one car, the logbooks must cover the same period. Our vehicle logbook template shows a layout that covers these details.
The car limit and GST
If you buy a car, its decline in value is worked out on a cost no higher than the car limit: $69,674 for 2025–26 and $69,883 for 2026–27. A car bought for $80,000 in 2025–26 is depreciated as if it cost $69,674. For GST-registered businesses, the GST credit on a car purchase is capped at one-eleventh of the car limit: $6,334 for 2025–26 and $6,353 for 2026–27. See our guide to the instant asset write-off for the small business depreciation rules.
Commuting: trips you can and can't claim
Driving between home and your usual workplace is private travel, even if you do it every day, take work calls on the way or there's no public transport. The ATO allows a claim only in limited situations:
- Carrying bulky tools or equipment that are essential for your work, where there's no secure place to store them at the workplace
- Itinerant work, where you regularly travel between a series of different work sites and have no fixed workplace (for example, a roof tiler sent to several sites each day)
- Travel between two separate workplaces, such as from your main job to a second job, or from your office to a client's premises
- Home as a base of employment, where you start work at home and travel to a workplace to continue it (this doesn't cover your regular daily trip to the office)
If a trip is partly private, you can only claim the work-related portion.
Sole traders, companies and FBT
Sole traders and partnerships
Sole traders and partnerships use the same two methods for cars, and actual costs for other vehicles. A sole trader's business car expenses are claimed in the business section of the return, not at D1 work-related car expenses. Our guide to small business tax deductions covers the other costs you can claim.
Companies and trusts
A company or trust can't use the cents per km or logbook methods. It claims the actual costs of the vehicles it owns or leases, including decline in value (subject to the car limit). If a company car is available for an employee's or director's private use, including being garaged at home, that's generally a car fringe benefit and FBT may apply. See fringe benefits tax for employees for how it works.
Electric vehicles and home charging
An electric vehicle that meets the car definition is a car, so the same methods apply. Under the cents per km method, charging is already covered by the rate. Under the logbook method, home charging is hard to separate from your household power bill, so the ATO's PCG 2024/2 lets you use a set EV home charging rate: 4.2 cents per km for 2022–23 to 2025–26, and 5.47 cents per km for 2026–27. Plug-in hybrids can use it from 1 July 2024. You need a valid logbook and one electricity bill for the year.
The rate is applied to the car's total km. You can only add commercial charging costs on top if your car reports what share of its charging was done at home; otherwise those costs are disregarded.
Example: Lena's electric car travelled 15,000 km in 2025–26 and her logbook shows 40% business use. Her car can't report where it was charged. Her home charging cost is 15,000 × $0.042 = $630, and her deduction for it is 40% × $630 = $252 (on top of her other car costs at 40%). At the 2026–27 rate the same driving gives 15,000 × $0.0547 = $820.50, or $328.20 at 40%.
For employer-provided cars, eligible battery electric cars can be exempt from FBT. Plug-in hybrids lost that exemption from 1 April 2025 unless they were already covered, and the 2026–27 Budget announced a phase-down from April 2027. See our guide to the EV fringe benefits tax exemption.
Essential record-keeping requirements
Receipts you must keep (logbook method)
- Fuel and oil: receipts, or an estimate based on your odometer records
- Servicing, repairs and tyres: invoices and bills
- Registration and insurance: renewal notices and policies
- Loan or lease: finance or lease agreements showing interest and payments
- Purchase: the contract or invoice for the car, for working out decline in value
Digital vs physical records
The ATO accepts both digital and physical records, but they must be:
- Legible and clear
- In English, or easy to convert into English
- Kept for 5 years from the date you lodge your return (for a logbook, 5 years from lodging the last return that relies on it)
- Backed up if stored digitally
The $1,000 standard deduction from 2026–27
From 2026–27, eligible employees get a $1,000 standard deduction for work-related expenses, with no records needed. Work-related car expenses you claim reduce it dollar for dollar, so a car claim only increases your total deductions once your covered work expenses go above $1,000.
Example: Ava drives 800 work km in 2026–27. At 91c her car claim is $728, which reduces her standard deduction to $272, so her total is still $1,000. Ben drives 4,000 work km: 4,000 × $0.91 = $3,640. That's more than $1,000, so he claims his actual expenses (with records) and his standard deduction falls to nil. Read more about the $1,000 standard deduction.
Common mistakes to avoid
- Claiming home-to-work commuting when none of the exceptions apply
- Claiming more than 5,000 km under the cents per km method
- Claiming 100% of expenses when the car is also used privately
- Relying on an old logbook after your travel pattern has changed
- Claiming costs your employer paid or reimbursed
- Reconstructing records after the fact instead of keeping them as you go
- A company or trust using cents per km instead of actual costs
Best practices and technology
- Use the myDeductions tool in the ATO app, which can keep an electronic logbook and record odometer trips (data is stored on your phone, so use its back-up feature)
- If you use a GPS logbook app, check it records the details the ATO requires
- Photograph receipts as soon as you get them and keep them in one folder
- Set reminders to record your odometer at the start and end of each income year
- Reconcile vehicle costs with your bank statements each month
Preparing for tax time
Individual taxpayers
Gather:
- Your work km and how you worked them out (cents per km), or your logbook and odometer readings (logbook method)
- Receipts for car costs if you use the logbook method
- Evidence of why each trip was for work
If you're unsure which costs need receipts, see what you can claim without receipts.
Business owners
Compile:
- Expense summaries for each vehicle
- Depreciation schedules (with the car limit applied)
- Business-use percentages from your logbooks
- FBT records for any vehicles available to employees for private use
The bottom line
Most car claims come down to three things: using the right method for your structure and vehicle, claiming only work travel, and keeping the records the ATO expects. The ATO keeps a close eye on work-related car claims, so get your logbook and odometer records in place for 2026–27 now, when the rate rises to 91c per km and the $1,000 standard deduction starts.
Need help with your motor vehicle expense claims? Download our tax checklist, call Australia Wide Tax Solutions on 0488 854 200 or book an appointment for help claiming every deduction you're entitled to.
Can I claim more than 5,000 km for my car?
Not under the cents per km method, which is capped at 5,000 work km per car each year. To claim more, use the logbook method, which has no km cap but needs a logbook and receipts.
Can I change car expense methods each year?
Yes. Individuals, sole traders and partnerships can choose the cents per km or logbook method each year and can use a different method for each car. Companies and trusts must use actual costs.
How do I get help with this from the ATO?
The ATO provides guidance through ato.gov.au, the Small Business Support Line (13 28 66), and Online Services for individuals and businesses. For complex situations, a registered tax agent provides advice tailored to your specific circumstances and professional indemnity protection. You can verify agent registration at the TPB register at tpb.gov.au.
What records do I need to keep for tax purposes in Australia?
Most tax records must be kept for five years from the date of lodgement or the date the transaction occurred, whichever is later. Records must be in English or convertible to English and must be sufficient to explain the income and deductions in your return. The ATO can request records at any time during the retention period.
When do I need a registered tax agent in Australia?
Consider a registered tax agent when your affairs involve multiple income sources, business activity, investment properties, capital gains, or overseas income. Agents extend your lodgement deadline, provide safe harbour protection, and take professional responsibility for the advice given. Verify registration at tpb.gov.au.
How does the ATO calculate penalties for compliance failures?
The failure to lodge penalty is based on penalty units ($364 per unit from 1 July 2026), accruing per 28-day period for late returns and BAS lodgements. Incorrect information penalties range from 25% to 75% of the tax shortfall depending on whether the behaviour was careless, reckless, or intentional. Proactive disclosure before an audit begins typically results in significantly reduced penalties.
What is the difference between tax avoidance and tax minimisation?
Tax minimisation is the legal arrangement of your affairs to reduce tax — claiming all eligible deductions, using appropriate structures, and timing income and expenses. Tax avoidance involves arrangements that technically comply with the law but achieve outcomes parliament did not intend. The ATO can apply Part IVA anti-avoidance rules to cancel benefits from avoidance arrangements.
