Car expenses are one of the most commonly claimed deductions in Australia and one of the most commonly adjusted by the ATO. The rules themselves are not complicated, but the difference between claiming well and claiming badly usually comes down to a single habit: whether you kept a logbook.
What are the two methods for claiming car expenses?
Individuals have two options. The cents per kilometre method applies a set rate to your business kilometres, up to a yearly cap per vehicle, and that rate is designed to cover everything — fuel, servicing, insurance, depreciation, the lot. The logbook method works out what percentage of your driving is for business, then claims that percentage of your actual running costs. You choose the method each year and can use different methods for different cars.
Which trips actually count as business travel?
Driving between two separate workplaces, out to a client site, to a supplier, or to the bank for business banking all count. What does not count is ordinary travel between home and your regular workplace — the ATO treats that as private regardless of how early you start, how late you finish, or whether public transport is available. There are narrow exceptions: carrying bulky tools that cannot be securely left at the workplace, travelling directly between two employers, and travelling to a location that is not your regular workplace.
How does the cents per kilometre method work?
You multiply your business kilometres by the ATO rate for that income year, capped at a maximum number of kilometres per car per year. You do not need receipts for fuel or servicing, but you do need to be able to explain how you arrived at the number of kilometres — a diary of trips, a pattern of regular client visits, or calendar records. "I estimated about 5,000" is exactly the kind of answer that invites an adjustment.
How does the logbook method work?
Keep a logbook for a continuous period of at least twelve weeks that fairly represents your usual travel. For each business trip, record the date, odometer readings at the start and end, kilometres travelled, and the purpose. That gives you a business-use percentage, which you then apply to your total running costs for the year — fuel, oil, registration, insurance, repairs, interest on a car loan, and depreciation. Once completed, the logbook is generally valid for five years unless your travel pattern changes materially.
Which method gives a bigger deduction?
For most people driving meaningful business kilometres, the logbook wins, and often by a wide margin — because it picks up depreciation and the real cost of running the vehicle rather than a flat rate. Cents per kilometre suits low business use and people who would rather not track receipts for a modest claim. The frustrating part is that you cannot decide retrospectively: without a logbook, the logbook method is not available to you at all, no matter how much better it would have been.
How do companies and trusts claim vehicle expenses?
Differently. Cents per kilometre is only available to individuals and partnerships of individuals. Where a company or trust owns the vehicle, it claims the actual running costs and depreciation, subject to the car cost limit. It must then consider fringe benefits tax, because a vehicle made available to an employee or director for private use — including simply being garaged at home — is a fringe benefit. A logbook matters here too, since it is what allows the more favourable operating cost method for FBT.
What records should you keep?
Your logbook or trip diary, odometer readings at the start and end of the income year, and receipts for running costs if you are using the logbook method. Photograph receipts as you go rather than hunting for faded thermal paper in June — apps like HubDoc capture them straight into your accounting file. Keep everything for the standard five-year period covered in our guide to business record keeping.
A twelve-week logbook is a small amount of effort that pays off for five years. The Metier Group helps Perth individuals and business owners work out which method suits their circumstances as part of our personal tax services. Contact us before your next return to make sure the claim is both maximised and defensible.