Ruqayyah Snyder
In Australia, there are two primary methods for claiming car expenses: the cents-per-kilometre method and the logbook method. The cents-per-kilometre method allows taxpayers to claim a fixed rate per business-related kilometre travelled in their personal vehicle, up to an ATO km allowance of 5,000 kilometres per year per car. This rate is set by the Australian Taxation Office (ATO) and is meant to cover all vehicle-related expenses, including fixed costs such as road tax, insurance and depreciation, and variable costs such as fuel, maintenance and repairs. The 2024/2025 rate is set at $0.88 per kilometre driven for business.
| Characteristics | Values |
|---|---|
| Cents per kilometre rate for 2024-2025 | $0.88 per km |
| Maximum kilometres per year per car | 5,000 |
| Who can use this method? | Sole traders, partnerships, employed individuals |
| Requirements | Proof of ownership or lease of the car, records of business kilometres |
| Alternative | Logbook method |
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What You'll Learn
Calculating the rate
In Australia, there are two primary methods for claiming car expenses: the cents per kilometre method and the logbook method. This answer will focus on the former.
The cents per kilometre method allows taxpayers to claim a fixed rate per business-related kilometre travelled in their personal vehicle. This method is straightforward: you take the amount of business-related kilometres driven (up to a maximum of 5,000) and multiply it by the rate applicable when the driving took place. This rate is set by the Australian Taxation Office (ATO) and is reviewed regularly. It is meant to cover the expenses of running a car, including registration, insurance, fuel, maintenance and repairs, as well as car depreciation.
For example, let's say you drove 3,000 kilometres with your car for business-related purposes in the 2024-2025 tax year. The ATO rate for this period is $0.88 per kilometre. To calculate your claim, you would multiply 3,000 by $0.88, giving you a total claim of $2,640 in work-related car expenses for that tax year.
It is important to note that the cents per kilometre method has specific eligibility requirements. You can use this method if you are an employed individual who has not been reimbursed for business kilometres by your employer, or if you are a sole trader or a partnership where at least one partner is an individual. Additionally, you must be able to show that you own or lease the car you are claiming for and provide evidence of how you calculated your business kilometres. While employees need to keep records, sole traders and partnerships are not required to provide written evidence of the exact number of kilometres travelled. However, the ATO may still ask to see how business kilometres were determined.
The ATO determines the rate for each year by considering the average costs of owning and operating a vehicle. This rate is then used to calculate mileage reimbursement for taxpayers using the cents per kilometre method.
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Who is eligible
The cents-per-kilometre method in Australia allows taxpayers to claim a fixed rate per business-related kilometre travelled in their personal vehicle, up to an ATO km allowance of 5,000 kilometres. This method is applicable if you are an employed individual who has not been reimbursed for your business kilometres by your employer.
Sole traders and some partnerships are also eligible to use this method. In the case of partnerships, at least one partner must be an individual. It should be noted that this method is not applicable if you are receiving reimbursements for work-related travel expenses or if you have a company car available to you. Additionally, if you have a novated lease arrangement, where your employer leases a vehicle for you, you cannot claim any car expense methods.
The cents-per-kilometre method is a convenient option for those who find tracking every expense challenging. It covers all car-related expenses, including fuel costs, maintenance, insurance, registration, decline in value, and repairs. It is important to note that you cannot claim additional deductions for specific car expenses on top of what is already covered by this method.
To claim expenses using the cents-per-kilometre method, it is essential to keep accurate records as proof for the Australian Taxation Office (ATO). While sole traders and partnerships are not required to provide written evidence of the exact number of kilometres travelled, the ATO may ask for an explanation of how the business kilometres were calculated, such as through diary records. Employees, on the other hand, need to keep records showing how they determined their business kilometres.
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Proof of eligibility
In Australia, taxpayers can claim car expenses through two methods: the cents per kilometre method and the logbook method. The former allows taxpayers to claim a fixed rate per business-related kilometre travelled in their personal vehicle, up to an Australian Taxation Office (ATO) allowance of 5,000 kilometres. This method does not require detailed record-keeping, making it convenient for those who find tracking every expense challenging.
The latter, the logbook method, requires maintaining a logbook for a minimum continuous 12-week period to determine the business use percentage of the vehicle. This method offers more flexibility as it allows taxpayers to claim the actual expenses incurred, such as fuel, registration, repairs, capital costs, and maintenance, proportional to the business use percentage.
When claiming motor vehicle expenses using the cents per kilometre method, accurate records serve as essential proof to the ATO. This can be in the form of a detailed diary of the distance travelled, specialised apps, or a well-organised spreadsheet. The ATO may request these records as proof of claims, so it is important to have reliable evidence.
It is also important to note that you must have proof of car ownership or leasing to make any claims. This is because you are only allowed to claim the business kilometres as a tax deduction, not all travel when claiming car expenses. For example, you cannot claim the distance to and from your regular workplace, but you can claim the distance between different jobs in a day. If your home serves as a base of employment, you can also deduct the distance from there to your job.
Additionally, the ATO has a clear definition of what qualifies as a car. According to their guidelines, a car is classified as a vehicle that can carry a load of less than one tonne and accommodate fewer than nine passengers. It is important to note that motorcycles, trucks, minibuses, and certain utility vehicles do not fall under the category of cars as defined by the ATO.
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Alternative methods
There are alternative methods to the cents-per-kilometre method for calculating work-related car expenses in Australia.
The first alternative is the logbook method, which allows you to claim the actual car expenses you have incurred, rather than using a set rate per kilometre. This includes fuel, oil, registration, insurance, lease payments, services, repairs, tyres, electricity expenses, interest charges and
Another alternative method is to use a mileage calculator or mobile application to track your trips and generate reports. Examples include using spreadsheets like Excel or Google Sheets, but this may require you to take down odometer readings for each trip.
If you are an employee, your employer will likely use one of these two methods to reimburse you for your work-related car expenses: providing an allowance for car expenses or reimbursing your specific car expenses. A car allowance is considered a benefit and needs to be declared as income, and it is up to you how you spend it. If your employer reimburses your specific car expenses, and these are taxed as part of your income, you can claim these as a deduction in your tax return. However, if your employer reimburses your specific car expenses and these are not taxed, you cannot claim a deduction as you have already been reimbursed.
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Historical rates
The ATO cents-per-kilometre rate for the 2024-2025 tax year is 88 cents per kilometre driven for business. This rate is meant to cover the expenses of running a car, including registration, insurance, fuel, maintenance and repairs, as well as car depreciation.
For the 2023-2024 tax year, the ATO cents-per-kilometre rate was 72 cents per kilometre. This rate was also applicable for the 2022-2023 tax year.
The ATO cents-per-kilometre rate for the 2021-2022 tax year was 72 cents per kilometre for the first 5,000 kilometres driven for business and 52 cents per kilometre for every kilometre thereafter.
The ATO cents-per-kilometre rate for the 2020-2021 tax year was 68 cents per kilometre for the first 5,000 kilometres driven for business and 52 cents per kilometre for every kilometre thereafter.
The ATO reviews and sets the cents-per-kilometre rate each year, taking into account the average costs of owning and operating a vehicle. This rate is meant to simplify the process of claiming car-related business expenses by providing a predetermined rate per business kilometre.
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Frequently asked questions
The cents per kilometre rate in Australia has been increased to 88 cents per kilometre for the 2024-25 tax year.
The Australian Taxation Office (ATO) sets the rate each year.
You can calculate your reimbursement by multiplying the number of business kilometres travelled by the rate per kilometre for the tax year.
You can claim up to 5,000 kilometres per year per car without keeping receipts using the cents per kilometre method.
The cents per kilometre method eliminates the need for detailed record-keeping, making it convenient for individuals who find tracking every expense challenging.
