What method do you use to claim business motor vehicle expenses?
If your business owns or leases a motor vehicle that is used for business purposes, it’s essential to keep proper records to ensure you’re entitled to the maximum deduction for your motor vehicle expenses.
Running costs like fuel and oil, repairs, servicing, insurance premiums and registration are all potentially claimable, as well as interest payments on a loan to purchase the vehicle, lease payments, and depreciation.
However, the method used to calculate your claim depends on your business structure and the type of vehicle you’re claiming for.
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Trusts and companies
If your business operates in a trust or corporate structure, you must use the “actual costs” method for all types of vehicles used in your business.
This means you can claim the expenses actually incurred, which requires you to keep receipts.
You can only claim for business-related use, so if you use the vehicle for any private purposes you must identify the percentage that relates to business use.
Keeping a diary that records your business and private use will allow you to justify your claim.
Travel between your home and your business is treated as “private” use, unless you operate your business from home and need to travel away from home for business purposes.
Individuals
If you’re a sole trader (or operating in a partnership that includes at least one individual), the method to use depends on whether the vehicle you’re claiming for is a “car” or some other type of vehicle.
A “car” for these purposes means a vehicle designed to carry fewer than 9 passengers and a load less than one tonne.
For vehicles not within the definition of “car”, you must use the “actual costs” method described above.
But for vehicles that meet the definition of “car”, you have a choice of which method to use to claim expenses: either the “cents-per-kilometre” method or the “logbook” method.
Cents per kilometre
The cents-per-kilometre method allows you to claim a set rate per kilometre travelled for business use, up to a maximum of 5,000 kilometres per year. The current rate for 2024–2025 is 88 cents per business kilometre. The law requires you to make a “reasonable estimate” of your business kilometres, which means you need to be able to show the ATO how you derived your total number of kilometres.
Logbook method
The logbook method, on the other hand, is not limited to 5,000 kilometres but you’ll need to keep more detailed records. A logbook of your business kilometres travelled is required in order to calculate the percentage of total kilometres travelled for business during the year. This is then multiplied by your car expenses to determine the amount of your claim.
In the first year of using the logbook method, you’ll need to record detailed odometer readings for each trip made in a 12-week continuous period. This 12-week representative period can then be used as the basis for calculating your claim for the year, and for the next four years.
Navigating the complexities
Once you’ve identified that your business may be entitled to claim vehicle expenses, it’s a good idea to seek expert advice on the detail as additional rules may apply.
For example, fringe benefits tax (FBT) may apply to the non-business portion of the vehicle use.
The cost for working out depreciation (decline in value) of cars is limited to a maximum value.
The logbook method requires you to also take into account circumstances such as variations in your pattern of use of the car.
Disclaimer: The information on this page is for general information purposes only and is not specific to any particular person or situation. There are many factors that may affect your particular circumstances. We advise that you contact Mathews Tax Lawyers before making any decisions.