Claiming car expenses for business purposes. Ah yes. The tax deduction that seems to have ‘werk perk’ scrawled all over it. Yet any accountant or tax agent will tell you, it’s also the most misunderstood. When claimed incorrectly, work related car expenses can have the Australian Tax Office (ATO) sending you a ‘please explain’ letter.
So, what are the do’s and don’ts of claiming business related car expenses? We’re glad you asked because we’ve gathered some info and made some lists. Just for you.
Before you read on we want to know that while we do our best to give you correct info, this is basic information only and it may be subject to change by the ATO. You should ALWAYS check with your accountant or tax agent to ensure you get the latest advice tailored to your circumstances.
In this article
Who can claim car expenses for business?
If you need to use your car for work purposes and you’re not compensated for the costs, you can claim it on your tax. This applies whether you’re an employee or running your own business.
There are two ways to keep track of your work-related car travel:
- Cents per kilometre method
- A vehicle logbook
Of course, you need to own the car to be able to claim. If your employer owns it, or you have use of it as part of a salary package, you can’t claim. Strangely enough, the ATO frowns on double dipping.
You also need to keep a record of all other business-related car expenses, such as insurance, registration, servicing and repairs.
Let’s look further at car expense claims if you’re a business owner, which is very similar to what you can claim as an employee.
What types of people use a car for work?
There’s no possible way we could list every person who would use their car for work and be entitled to claim. But we can easily name drop some industries and roles that are very likely to be able to do just that.
Freelance *insert name of freelance job*
- Copywriters and journalists
- Photographers
- Marketing and advertising types
- Mobile hairdressers
- Dog walkers and groomers
- Mobile make-up artists
- IT consultants
- Website developers
- Graphic designers
- Property stylists
- Academic and music tutors
- Event coordinators
- Virtual assistants
- Travel consultants
With the gig economy on the rise, the list is endless. And with news reports stating that around seven percent of working Australians are employed in this way, that assortment will continue to grow. Which makes information like this blog even more important. HINT: Bookmark it, just in case.
Salespeople
Yes, they do still exist and yes, they do still trek door to door (although more likely business to business these days). Think brokers, party plan sales reps and so on. Many spend much of each day in their car, using it as a mobile workplace and taking advantage of in-car technology.
No point spending time in an office or working from home when face to face relationships are at the heart of your sales.
Tradies
What a tradie (skilled manual worker) can claim depends on whether they’re an employee or operating a small business, including as a sole trader. Even as an employee, they may still be able to claim on some very specific trips between home and work. Check out the ATO website for more tradie specific info.
Claiming car expenses isn’t complicated. As a general rule, if you travel between two places of work, carry specialised tools or equipment, deliver or collect supplies, attend work-related conferences, or visit clients for meetings or to work ‘in-house’ with them, you may be able to claim some of your expenses at tax time.
Record keeping for claiming car expenses for business
Oh, here we go. The great joy of every business owner’s life.
Admin. Record keeping. Figuring out what car expenses are tax deductible.
Ugh.
You can feel the life being sucked out of you just reading those words, can’t you? But you’ve made it this far, so let’s keep going.
Whether you like kicking it old school and use paper and pen or you use an app (more on that further down), there are two ways you can keep track of work-related car travel. As mentioned above, that’s cents per kilometre or the vehicle logbook method for claiming car expenses.
Let’s take a closer look at these ways the ATO wants you to use for claiming car expenses for business purposes:
Cents per kilometre
- This is based on a set rate for each business kilometre you travel.
- You can claim up to 5,000 km per year, per vehicle. If you travel over 5,000 km, this process isn’t for you. You’ll need to use the logbook to get your correct (reads bigger) tax return.
- You calculate by multiplying the total business km travelled by the standard rate of 85 cents per km. This amount considers all operating expenses, including repairs, insurance, petrol, registration and maintenance. Don’t try to add these over and above your existing calculations or you’ll effectively be attempting a double dip!
- You don’t need written evidence, but you must be able to show you’ve driven the km claimed. A diary of work-related journeys (including the km travelled) will do.
Here’s an example of what this method looks like:
Olivia is a violin teacher. In the the 2023/24 tax year she drives four trips to different locations every weekday to give lessons. Her total daily km is around 15 km. Using the cents p/km method she would work out her total claimable work related car expenses as follows:
15km X 5 days a week = 75 km p/week
70 km p/week X 44 weeks (52 weeks p/year less 8 weeks of holidays = 44 weeks) = 3080km
3080 X $0.85 = $2618
Olivia can claim $2618 in the work related car expenses section of her tax return.
Logbook for claiming car expenses for business
- Based on the percentage you use your car for business.
- You only need to keep a log for a minimum 12 consecutive weeks (excl holidays so avoid recording these 12 weeks over a holiday period).
- Note that a completed logbook is valid for five years, unless your driving patterns change. For example, you change jobs and therefore driving patterns. In this case, complete a log of your new 12 week pattern.
- Through your logbook, you can claim all expenses that relate to the car (including a portion of your car insurance), at your percentage of business use.
- The logbook must record all business journeys (as well as personal ones) made in the car over the 12 week period, noting;
- the logbook period
- the car’s odometer readings at the start and end of the period
- total km travelled
- the business percentage for the logbook period
- For each journey in the logbook, you must record:
- start and end times of the journey
- odometer readings at the start and end of the journey
- km travelled
- reasons for the journey
- If you make two or more trips in a row on the same day you can note them as a single entry.
- You’ll need to keep all receipts to validate your claim. This includes going beyond km travelled and into insurance, registration, servicing and repairs.
- Petrol can be guesstimated using the start and end odometer readings, showing the total km travelled.
Templates and Apps for claiming car expenses for business
Logbooks are available from newsagents, major department stores and stationery suppliers. It’s a great excuse for a trip to Officeworks. YAY! There are also plenty of vehicle log book templates you can download online.
As for the apps, here are three of our faves. Best of all, they’ve been designed specifically for Australians and are ATO compliant:
- Driversnote – Lite version is free, while Basic and Enterprise versions are paid. The free version offers up to 15 free GPS tracked trips per month (Basic/Enterprise give you unlimited trips) but you need to remember to use the stop and start button. Perhaps the best feature? It automatically backs up.
- GOFAR – This app costs $8 and includes some extras including insurance, registration and servicing reminders. The app uses your km and destinations input data to generate a tax ready report. Unlike most logbook apps, this one stands out for automated tracking when you start and stop your trips.
- ATO Vehicle Logbook – free from the ATO. It’s very basic but does the job. You can record and manage work related expenses and trips and swap between GPS and manual mode. You can upload your myDeductions records to the ATO to pre-fill your tax return.
To DIY or not to DIY
The age-old question when it comes to tax time. There’s no right or wrong answer here. But there is what’s right or wrong for you. If in doubt about what you can and can’t claim, it’s always best to see an expert so you don’t end up on the ATO naughty list.
The other main consideration is, do you have time, or really want to do it?
DIY plus a work related car expenses calculator
If tax and numbers are something you enjoy (who even are you?) and you know what you’re doing, then that’s probably a silly question. If you are doing it yourself, you may want to check out the ATO’s work related car expenses calculator.
Outsourcing
But if you can think of a multitude of other things you’d rather do than tax (we hear you), then support your local economy, hire an accountant and let them sort it all out. As someone who lives and breathes taxes, they can usually find extra things you can claim, so the investment is probably worth it.
For many people, their car lies at the epicenter of how they conduct their work so claiming on work related car expenses is well worthwhile. But others only claim the occasional trip.
Either way, we hope you’re feeling far more confident in claiming of business related car expenses now. Plus, we also have tips on claiming car expenses on your tax returns if you’re just a regular individual.
Here are more ways to save and claim on your driving expenses:
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