With tax time approaching, many Australians are unsure about what vehicle expenses they can claim and what they cannot.
According to Coco Hou, CPA and CEO of Platinum Accounting Australia, there are a number of eligible car-related deductions, but strict rules apply.
“Car expenses are one of the most commonly misclaimed items on a tax return,” Hou said. “A lot of people assume they can claim just because they drive for work, but unless the travel meets specific criteria and you have accurate records, it won’t hold up under scrutiny.”
Hou stressed that understanding those rules can mean the difference between a maximised return and a costly audit.
The difference between private and work-related travel
One of the most important distinctions taxpayers must understand is the distinction between private travel and work-related travel.
“Driving from home to your regular workplace is considered private, and is not deductible, no matter how far you travel or how often you drive. This includes tolls, parking and fuel costs related to the commute,” Hou said. “However, travel that occurs as part of your job, such as driving between worksites, attending client meetings, collecting supplies or transporting equipment, is considered work-related. Those kilometres and related costs may be eligible for deduction.”
Cents-per-kilometre vs logbook method for claiming deductions
The law specifies two main ways to claim car expenses: the cents-per-kilometre method and the logbook method.
“The cents-per-kilometre method allows you to claim up to 5000 business kilometres per year at a set rate, currently 85 cents per kilometre. This rate includes fuel, servicing, registration, insurance and depreciation, so those cannot be claimed separately,” Hou explained.
She also recommended, “For people who do a significant amount of work-related driving, the logbook method is often more beneficial. It allows you to claim a percentage of actual car expenses based on your documented business use.”
Hou emphasised as well that a logbook must be maintained for a continuous 12-week period and updated if the taxpayer’s usage pattern changes. Once established, that percentage can be applied to running costs such as petrol, oil, insurance, servicing, repairs, registration, loan interest and depreciation.
Other allowable deductions
The law also allows for car washes, detailing and even things like car air fresheners, sunshades, tissue boxes and car seat covers to be claimed as deductions but only under the logbook method and only in proportion to business use.
For example, if a taxpayer frequently drives clients or colleagues to meetings and want to keep the car clean and presentable, they may be able to claim a portion of those costs, but this must be documented and clearly tied to work-related activities.
“If you buy a car scent or get the car cleaned to make a good impression on a client you are driving to a meeting, that’s potentially deductible,” Hou said. “But if you just want your car to smell nice for personal reasons, that’s not a business expense.”
Parking, tolls, and garaging
In the same manner, taxpayers cannot claim parking at their regular place of work, however they can claim parking or tolls incurred while travelling to client meetings or other work-related destinations. If they paid for toll or for parking while heading to a job site, those receipts should be kept.
Hou also clarified that garaging is considered a private cost unless the home is the base of your business and the car is essential to your work operations.
Regarding leased or financed cars
Under the law, leased or financed cars are also covered for deduction. If using the logbook method, the interest portion of your lease or loan repayments can be claimed in proportion to business use provided there is documentation.
Ride-share drivers, small-business owners and tradespeople who rely on their vehicles to generate income may be eligible for more extensive deductions, but they must still follow the same record-keeping requirements. This includes maintaining fuel receipts, service invoices, insurance documents and a current logbook if using the actual expenses method.
“Just because you can access your car records doesn’t mean they are tax-compliant records,” Hou said. “You need to actively track your use and expenses, not just make assumptions or round figures. The ATO is very specific about this.”
Talk to an accountant
While the tax rules around vehicles can seem complex, Hou advises taxpayers to keep detailed records and speak to a qualified tax advisor before lodging their return.
“A lot of people miss legitimate deductions simply because they’re not aware of them, or worse, they claim things they shouldn’t and get caught out,” she said. “A short meeting with your accountant could save you hundreds and make sure you stay well within the rules.”
