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Key points
The following are key points:
- The method you use to calculate your claim for motor vehicle expenses depends on your business structure.
- If you change your business structure, your entitlements and obligations may change.
- If you use your motor vehicle for both business and private use, you can only claim the portion of your expenses that is used for business.
- You must keep records of your expenses for 5 years - (consider keeping a logbook if you want more options when claiming a deduction for your motor vehicle).
Types of motor vehicles
The type of motor vehicle you drive can affect how you calculate your claim. A motor vehicle is either a car or an ‘other vehicle’.
Car
A ‘car’ is a motor vehicle (including electric vehicle) that is designed to carry:
- a load of less than one tonne, and
- fewer than 9 passengers.
Many four-wheel drives and some utes are classed as cars.
Other vehicle
Your motor vehicle is an ‘other vehicle’ if it is not a car. Other vehicles include:
- motorcycles
- minivans that can carry 9 or more passengers
- utes or panel vans designed to carry loads of one tonne or more.
Similar to other vehicles, expenses incurred in running a ute are not automatically tax deductible; you need to use the ute in your business and you can only claim the business portion.
Types of expenses
Common types of motor vehicle expenses you can claim include:
- fuel and oil
- electricity (for charging an electric vehicle)
- repairs and servicing
- interest on a motor vehicle loan
- lease payments
- insurance
- registration
- depreciation (decline in value) of the vehicle.
Business structure
Your business structure affects your entitlements and obligations when claiming deductions for motor vehicle expenses.
Sole traders and partnerships
If you operate your business as a sole trader or partnership (where at least one partner is an individual), the way to calculate your deduction depends on the type of vehicle and how it is used. The vehicle can be owned, leased, or hired under a hire purchase agreement.
You can only claim motor vehicle expenses that are part of the everyday running of your business (such as travelling between different business premises). If the vehicle is used for both private and business purposes, you must exclude any private use (such as driving your children to school).
Cars
For cars, you can calculate your deduction using the cents per kilometre method or the logbook method.
Cents per kilometre method
You can claim a maximum of 5,000 business kilometres per car per income year using the cents per kilometre method.
Rates are reviewed regularly so make sure you check the rate for the income year you are claiming for. The rate is 85 cents per kilometre for 2023–24 and takes all of your car running expenses, including depreciation, into account. This means you can’t make a separate claim for depreciation of the car’s value.
You don’t need to keep a logbook, but you must be able to show how you worked out your business kilometres (for example, calendar or diary records).
For claims above 5,000 kilometres, you must use the logbook method to claim the entire amount.
Logbook method
You can claim the business-use percentage of each car expense, using the logbook method.
You must record:
- when the logbook period begins and ends
- the car’s odometer reading at the start and end of the logbook period
- details of each journey, including start date and finishing date, odometer readings at the start and end, kilometres travelled, and reason for the journey.
You must keep the logbook for a period (at least 12 continuous weeks) that is representative of your travel throughout the year. You can then use this representative period to calculate your claim for 5 years if you:
- keep the logbook
- take odometer readings at the start and end of each year that you use it.
Work out the percentage of business travel from your logbook and use this to claim your business-related car expenses.
You can’t claim capital costs, such as the purchase price of the car, as a general deduction but you can claim the depreciation over the life of the vehicle.
Other vehicles
For all other vehicles, you can’t use the cents per kilometre or logbook method. Your claims must be for actual costs for expenses you incurred, based on receipts. You can use a diary or journal to separate private use from business use.
If you're a sole trader, you can use the myDeductions tool in the ATO app to keep a logbook and record business-related car trips and other car expenses. For more information, see myDeductions.
Companies and trusts
If you operate your business as a company or trust, you can only claim the actual costs for motor vehicle expenses that are part of the everyday running of your business (such as travelling between different business premises, visiting clients or picking up goods for sale). You can only claim actual costs based on receipts for expenses incurred.
Your company or trust can't use the cents per kilometre or logbook method to calculate your claim.
If your business is a private company that provides a vehicle to a shareholder or their associate to use in their capacity other than as an employee, this may be treated as a dividend or loan (Division 7A) which could affect the deductibility of your motor vehicle expenses. For more information, see Division 7A and fringe benefits tax.
Motor vehicle ownership
There are other things you need to consider depending on the ownership of the vehicle.
Vehicle owned or leased by your company or trust
Your company or trust can claim a deduction for the running expenses of a vehicle that is owned or leased by your business.
If the vehicle is available for private use by an employee or their associate (such as a spouse), fringe benefits tax (FBT) may apply. For more information, see Car fringe benefits.
Vehicle owned by your employee
If your employee uses their own vehicle for business-related purposes and you pay them a motor vehicle allowance or reimburse them their costs, your business can claim a deduction for the allowance or expenses reimbursed, such as the cost of fuel.
You can’t claim depreciation if the vehicle is owned by your employee.
Your employee can claim a deduction for costs related to the business use of their vehicle in their own tax return, minus any reimbursements they received from your business.
Depreciation (decline in value) of a motor vehicle
If you work out your deduction for expenses using the logbook method or actual costs, then you can generally claim a deduction for capital costs, such as the purchase price of a motor vehicle, over a period of time. This is known as depreciation. For more information, see Depreciation.
You can choose to use the simplified depreciation rules if you have an aggregated turnover of less than $10 million. Find out more at simpler depreciation for small business.
If the business vehicle is a car, there’s a limit on the cost you can use to work out your depreciation claim. For the 2023–24 income year, the limit is either:
- $68,108, or
- the cost of the vehicle if it’s less than this amount.
If you’re a sole trader or partnership and use:
- the cents per kilometre method, you cannot make a separate claim for depreciation of the vehicle as this is already taken into account
- the logbook method, you can only claim depreciation on the business portion of the motor vehicle’s cost.
Records you need to keep
The records you need to keep depends on the method you use to calculate your motor vehicle expenses. Regardless of the method you use, you will need to keep:
- loan or lease documents
- details on how you calculated your claim
- tax invoices
- registration papers.
Other records include:
- details of the kilometres travelled for business and private use
- receipts for fuel, oil, repairs, servicing and insurance cover.
For more information, go to Claiming a tax deduction for motor vehicle expenses or speak to a registered tax professional.