Claiming Car Expenses on Your Tax Return

Claiming car expenses on your tax return can sound like a big job, but it’s a great way to save money after the fact. Just ask your tax agent or accountant; they’re sure to agree. Because saving money isn’t only about not spending it in the first place. You might be surprised by how far you can go (legally!) when you claim car expenses for work.

Saving money is also very much about understanding what you can recoup via tax returns because you’re entitled to it. And let’s face it, cars are a primary expense in day-to-day living, from the upfront cost of the vehicle itself to fuel and upkeep. (For more car-related finance tips, find out how to save on fuel and how much you should spend on a car).

So besides getting us from A to B and back, let’s see what returns our cars can get us when it comes to tax.

Claiming car expenses for work

You might think you can’t claim car expenses unless you use your car for work. And while you’d be correct in thinking that, there are many work related car expenses you may not realise you’re entitled to.

If you either own or lease the car, that is. Nodding yes to that first hurdle? Read on…

What can you claim car expenses for?

Following is a list of the most common work related car expenses one can claim for as an employee. Own your own business? Read our guide to claiming car expenses for business here.

Can

• Driving to and back from work related activities that take place outside of your normal workplace, for example, to get to a client’s premises or a meeting with an external stakeholder
• Driving to a non-work site outside of your normal workplace (when you work from home) to continue work for the same employer
• Driving to more than one jobsite a day before driving home
• You have two jobs (neither is based where you live) and you drive from one job to the other

You might even be able to get a tick for claiming car expenses if you transport equipment between work and home because you can’t store it at work (eg. a ladder or drumkit). This can be a grey area though, so best to check with your accountant or the Australian Tax Office (ATO).

If your employer reimburses you for car related costs you won’t be able to claim them a second time. You also can’t go claiming car expenses for your regular drive to and from work, even if you make the trip many times a day. Let’s recap ….

Can’t

• Regular trips to and from work
• Additional trips to and from work
• Trips for minor tasks that are work related
• Trips your employer has reimbursed you for

Calculating work related car expenses

The ATO recommends two ways of calculating your work related car expense deductions. Remember, work related refers to the ‘can’ list above.

These two methods are the cents per kilometre method and the logbook method. You can use whichever method has the greater benefit. Or just whichever one is easiest.

Here’s how each method is calculated.

1. Cents per kilometre

• Business kilometre. The set rate you can claim at the time of writing is 72 cents per business kilometre.
• Estimate. Although you don’t need written evidence, you’ll still need to show how you worked out the total business kilometres. For example, to explain your total annual figure you might be able to indicate how many trips you do a month and how far each trip is. Even though the ATO says you don’t need written evidence, keeping your slips is always a good thing to have as backup. Just in case it does ask.
• Maximum claim. Using the cents per kilometre method you can only claim a maximum of 5,000 business kilometres a year.

2. Logbook

For this method of claiming car expenses, you’ll need to know your business kilometres as a proportion of your total mileage for the year (not just your business kilometres). Here’s how:

• Business use percentage. Take the total number of annual business kilometres and divide it by the total kilometres driven. Multiply your answer by 100 to get your business use %.
• No claim limit. There’s no limit on how many business kilometres you claim for.
• Written evidence. This method requires the following documented evidence:
  • Logbook (a log of each business trip)
  • Odometer readings (at start and end of each trip)
  • Petrol and oil receipts/estimate based on the annual odometer reading
• Depreciation. Under the logbook method, you’re able to claim on depreciation, calculated at a quarter of the car’s value.

To claim this way you need to keep a logbook for at least 12 consecutive weeks, however you only need to complete this process once every five years. Be sure to keep your receipts should the ATO come knocking.

Because the logbook method is a bit more detailed, here’s a video to demonstrate how to use it:

If you read this and thought ‘it doesn’t apply to me unless I’m in construction or something similar’, think again. You could be a musician who transports your cello to various performance venues. Or a painter who transports canvasses to meetings with art gallery owners, for example.

If this is you, you can actually claim work related car expenses!

What about car allowance tax?

Is car allowance taxable? If you receive a car allowance for work, you’ll know you can use it to cover car-related work expenses. This includes car running costs like fuel, new tyres, car repairs, for when you service your car, and even for payment towards a new car in some cases.

But is car allowance taxed? In short, yes it is taxable. Essentially, it’s part of your income. And as you already know, you have to pay tax on your income.

Car allowance is considered a benefit, not a reimbursement. It should appear on your payslip if you get one. Thus, you pay tax on car allowance as part of your income. As stated by the ATO “it is assessable income, and the allowance must be included on your tax return.”

Car allowance tax is calculated based on your income tax bracket.

However, as you now know, employees can claim car expenses on business-related car use. So hopefully you can get some deductions!

Other work related car expenses

Below are some of the other work related car expenses you could be eligible for if you satisfy the earlier criteria we’ve outlined. Note you can only claim them via the Logbook method, though:

• Car insurance
• Car registration
• Servicing and repairs
• Car loan interest payments
• Other running costs, such as toll fees

There could be other claimable expenses too (e.g. a specialist drivers licence if needed for work), so it’s best to engage with your accountant or tax advisor to ensure you cover everything. Hopefully it’s now pretty obvious that you should at the very least do a quick scour of the latest ATO requirements before ruling in or ruling out certain car expenses.

You should also always check the ATO for updates and changes, too.

Read more:

• Sole Trader or Self Employed? A Guide to Business Vehicle Finance
• Are End of Financial Year Car Sales Worth It?
• 5 Traps to Avoid When Buying a Car for Business Before EOFY
• 7 Financial Perks of Being the Only Driver of Your Car
• Road Rules You Might Not Know About

Insurance at claim time

As mentioned, claiming car expenses on your tax return might be possible – hooray! That’s even more reason to check out our three simple and affordable plans now: comprehensive car insurance, third party property damage and third party fire and theft. You’ll have greater peace of mind if you’re financially covered for repairs and/or