A car expense for income tax purposes is a loss or outgoing to do with a car, including operating costs and depreciation.
A work-related car expense claim is a tax deduction in relation to a car which is used for business or income producing purposes.
In principle, travel directly between home and place of work, and the return trip are considered to be not deductible, but there are exceptions – Travel between home and work.
Generally, eligible cars must be owned (including under finance) or leased. Motor cycles, taxis on hire or non-continuous car rentals are not covered by these rules.
The rules which set out how car claims can be made are referred to as the car expense substantiation(1) rules. The rules cover most circumstances, but there are some exceptions.
If you hate record-keeping, you will probably want to choose the method involving the least amount of record-keeping effort – the Cents Per Kilometre method.
Each year you can choose the claim method which gives you the best result. The best result for a particular year is not necessarily the biggest claim. You can take into account next year events, such as the sale of a vehicle, or a significant change in circumstances.
Vehicle claim methods (2)
Car expense claim methods are:
(2)For years up to 30 June 2015, the following methods were also available:
Each method requires you to make come form of estimate of your business kilometres for the year.
There are also specific rules for:
- exemptions from the car expense substantiation rules, and how they are treated
- depreciation claims based on the cost of the car
- what happens when a car is sold
*(1) Applicability of substantiation rules
The substantiation rules only apply to natural persons, including partnerships but not companies or trusts for which claims must be made on an actual costs basis relying on appropriate records.
In most cases this would be satisfied by using the log book method. See further: Actual costs method.
Employees: TR 2021/1 Income tax: when are deductions allowed for employees’ transport expenses?
In June 2017 the Tax Office issued a draft ruling (TR 2017/D6) guiding deductions for employees’ travel expenses. That was superseded by Draft Taxation Ruling TR 2019/D7 and finalised in TR 2021/1.
The ruling deals with deductibility of expenses relating to the cost of travel by airline, train, taxi, car, bus, boat or other vehicle.
The ruling follows the general principle that transport expenses for ordinary travel between home and a regular place of work are not deductible, whereas travel between work locations is usually deductible.
The ruling sets out 12 examples which include special cases and exceptions to the general rules, including the relationship to the ‘otherwise deductible’ rule for FBT purposes.
For a summary of the issues and current Tax Office thinking, see: Tax Insights – ATO’s view on tax treatment of travel expenditure – Deloitte (Feb 2021),
For the rules applicable to other kinds of employee travelling costs, see further at ATO Reasonable Travel Allowances and Living Away From Home Allowances.
This page was last modified 2021-08-11