Maximise Your Tax Refund: How to Claim Car Expenses in Australia

If you use your car for work-related purposes, you’re likely entitled to claim certain car expenses as tax deductions. However, navigating the rules and ensuring you make the most of your claim can feel overwhelming. In this article, we’ll simplify the process by covering everything you need to know about claiming car expenses on your tax return in Australia. From eligibility to calculation methods, this is a step-by-step guide to help you. 

Do You Need to Own a Car to Claim Car Expenses?

Contrary to popular belief, you don’t need to own the vehicle to claim car expenses. If you’re using a car for work purposes, whether it’s owned, leased, or hired under a hire-purchase agreement, you can still claim certain expenses. However, these claims must be related to work use, and the vehicle must be registered in your name, even if you’re not the owner. You cannot claim car expenses for a vehicle owned or leased by someone else, including your employer or family members.

What Car Expenses Are Tax Deductible?

There are many tax-deductible car-related expenses, including:

• Registration and insurance

• Repairs and maintenance

• Fuel and oil

• Depreciation of the vehicle’s value

• Loan interest or lease payments

However, personal use expenses—such as driving to social events or your daily commute—are not claimable, except in specific circumstances like carrying bulky tools that can’t be left at work.

Eligibility: When Can You Claim Car Expenses?

To help you understand when car expenses are tax-deductible, here are some common scenarios:

• Travelling between two different workplaces (for example, if you have more than one job).

• Traveling from your normal workplace to a client’s premises and back.

• If your home is a base of employment, and you travel to a workplace from home to continue your work.

• Regularly working at multiple locations on the same day before heading home.

• Transporting bulky work-related tools that you can’t leave at the workplace.

If any of these apply, you’re likely eligible to claim car expenses on your tax return.

Proving Car Expenses: What Records Do You Need?

The Australian Tax Office (ATO) requires you to keep accurate records to support your car expense claims. You’ll need:

• Written evidence such as receipts, invoices, or diary entries for all expenses.

• A car logbook and odometer readings to substantiate work-related usage if you’re using the logbook method.

Keeping these records ensures your claims are valid and can stand up to scrutiny if the ATO decides to review your tax return.

Two Methods to Calculate Your Car Expense Deductions

The ATO provides two methods for claiming car expenses: the Cents per Kilometre Method and the Logbook Method. You can choose the method that works best for you, depending on which one gives you the largest deduction or is easiest to apply.

1. Cents per Kilometre Method

This method allows you to claim a set rate for each work-related kilometre driven, up to a maximum of 5,000 km per year. Here’s how to calculate your deduction:

• Multiply your total business kilometres by the applicable rate (85 cents per kilometre for the 2023–24 tax year).

• For example, if you drove 3,000 business kilometres in 2023–2024:
  3,000 km x $0.85 = $2,550 deduction.

Remember, this method doesn’t require detailed substantiation, but you still need a reasonable basis for your claim, such as diary entries or work logs.

2. Logbook Method

The logbook method allows you to claim the business-use percentage of your actual car expenses, including fuel, maintenance, and depreciation. You’ll need to keep a logbook for at least 12 continuous weeks to establish your business-use percentage. This logbook will be valid for five years, as long as your business-use pattern doesn’t change.

For example, if your logbook shows that 60% of your driving is work-related, and your total car expenses for the year are $9,000, you can claim:
$9,000 x 60% = $5,400 deduction.

Final Thoughts: Make the Most of Your Deductions

Claiming car expenses can be a powerful way to reduce your taxable income, but it’s essential to follow the rules and keep accurate records to avoid ATO audits. Choosing the right method—whether it’s the Cents per Kilometre or Logbook method—depends on your specific circumstances. It’s always best to review your options and decide which one will maximise your tax return.

If you’re unsure or need help navigating these complex tax rules, don’t hesitate to seek professional advice. The team at Aero Accounting Group is ready to assist you. Our experienced tax experts will ensure you’re maximizing your deductions and getting the best possible outcome on your tax return. Contact us today to get started!