Car Expense Deductions For The Self-Employed

In this article, you'll learn the rules on car expense deductions for the self-employed in Australia. 

Read on to learn how to keep track of tax-deductible mileage and related car expenses, and to find out which method of calculation is right for you.

If you’re (also) an employee

If you're an employee and you're looking for a how-to on mileage reimbursement or an employer wanting to know the rules for reimbursing your employees, you can instead check out our respective guides for employees and employers.

If you happen to be both self-employed and an employee, you must keep separate records for each activity. In that case, we suggest you read both guides.

In either case you will need to keep a meticulous vehicle log book. With the Driversnote logbook app you can have mulitple workplaces and create separate reports for them. That way every business kilometre you drive is properly documented and categorised.

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How to calculate motor vehicle expenses

As a self-employed business owner, you can deduct car expenses accrued while doing business. If you use a car solely for business, you can deduct all the expenses related to operating the car. 

However, if you use the car for both personal and business travel, you can only deduct the cost of the business use. We'll get to how you can keep track of that later.

In Australia, there are three methods of calculating your mileage claim for tax deduction purposes:

1. The cents per kilometre method
2. The logbook method
3. The actual costs method

The method you should use according to your employment situation

If your business is classed as a sole trader or partnership, you have the following options:

• If claiming for a car, you can use either the cents per km method or the logbook method
• If claiming for a motorcycle, a vehicle designed to carry a load of more than a tonne, or a vehicle designed to carry nine or more passengers, you must use the actual costs method to calculate your deduction.
• If your business is classed as a company or trust, you must use the actual costs method. This applies no matter which type of vehicle you have used.

The cents per kilometre method

The simplest way to calculate your work-related car expense deduction, the cents per kilometre method allows you to claim a deduction per business kilometre driven. The ATO sets the rate for each financial year, starting in July. The 2024/2025 cents per km rate is $0.88. The rate is set to cover all costs of owning and operating your vehicle for business purposes. Find out more about the 2024/2025 ATO rate.

Claiming business kilometres for the previous tax year? See the 2023/2024 rate per km.

You don’t need to provide records when claiming your car expenses from the ATO, but you should be able to show how you worked out your deduction if asked by the ATO.

Note that you can claim up to 5000 kilometres per tax year if you use the cents per kilometre method.

The logbook method

The logbook method allows you to calculate your work-related car expense deductions by keeping track of your mileage and total car expenses in a logbook, whether that is a paper book or an app.

To work out the amount you can claim with this method, you must keep ATO compliant records. Your logbook must contain the following information:

• The beginning and end of the period recorded in your logbook
• The car’s odometer readings at the start and end of the logbook period
• The business-use percentage of your driving for the logbook period
• Your car’s information - the make, model, engine size and registration number

For every journey, you must record the following:

• The date of the trip
• The kilometres travelled
• The start and end odometer reading of each trip
• The description of the business reason for the trip, or whether it was private

Calculate your deduction by working out the percentage of business use of your car. For example, if 40% of your kilometres were for work-related driving, you'll be able to claim 40% of that year's car expenses. There is no limit to the number of kilometres you can claim with the logbook method.

If you use the logbook method, you will be able to also claim a tax deduction on the depreciation of your vehicle. Note that you can only claim depreciation for the business use percentage of your driving. If your vehicle is considered a car by ATO standards, there is an upper limit to the car cost you can claim depreciation for. This limit is updated almost every tax year to reflect the consumer price index for vehicles.

The actual expense method

You can use this method if your business is registered as a company or trust, or if you are a sole trader or part of a partnership claiming expenses for a vehicle other than a car, like a motorcycle or a van.

The actual costs method of calculating your deduction is again based on all receipts for all business-related motor vehicle expenses and the business-related kilometres you've driven.

You can only claim the percentage of the actual costs that relate to the business use of the vehicle. Therefore, if a vehicle is used for both business and private purposes, you must keep records that allow you to work out the business-use percentage.

You will also able to claim a deduction for capital expenses, such as the depreciation of your vehicle. Keep in mind that if your vehicle is a car, there is a limit on the car cost you can claim depreciation for. The limit is revisited each year by the ATO to take into account the current consumer price index for vehicles.

What the ATO considers business-related driving

Using the logbook or actual cost methods, there's no upper limit to how many kilometres you can claim a deduction for, as long as you drive them for business. There are a few more things to consider though, and we've compiled a brief list.

Types of transportation that are considered business:

• Travelling between two different places of work
• Meeting clients and going on customer visits
• Running errands for your business

Types of transportation that are NOT considered business:

• Commuting from your home to your place of work
• Carrying tools does not necessarily make a commute a business trip
• Displaying advertising on a car does not make driving it a business trip

For more specifics, including cases in which you have no place of work, where your home qualifies as your place of work, carpooling, and more, check out the ATO's own publication on work-related car expenses.

Keep your records in case of an audit

The ATO requires that you keep records of any deductions that you are claiming for five years from the date you submit your tax return. This is to ensure you will be able to provide evidence to back up your claims in case of a future tax audit.

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