A Complete Guide to Claiming Deductions for Motor Vehicles Used by Employees
If your business provides vehicles to employees for work-related duties, understanding how to claim deductions correctly is essential. The ATO has detailed guidelines outlining what can be claimed, how to calculate business use, and what records must be kept — especially where there is any private use involved.
This guide from Trinity Accounting Practice explains the requirements for claiming motor vehicle expenses when employees use vehicles provided by their employer, including FBT implications and how to maximise your deductions while staying compliant.
When Your Business Provides Vehicles to Employees
If your business owns or leases vehicles and provides them to employees, you may be eligible to claim deductions for the operating costs. This applies whether the vehicle is used entirely for work purposes or for a combination of business and private use.
When a vehicle is used exclusively for business, the full operating costs are deductible. When a vehicle is used for both business and private purposes, you must apportion the expenses and can only claim the business-use portion. You must also assess whether Fringe Benefits Tax (FBT) applies when employees use vehicles for personal travel.
Types of Vehicles
The ATO distinguishes between two categories of vehicles, and this classification affects how deductions and FBT are calculated.
Cars are vehicles designed to carry fewer than nine passengers and a load of less than one tonne. Most sedans, hatchbacks, station wagons, and SUVs fall into this category. Other vehicles include vans, utes, trucks, and motorcycles — generally those designed to carry one tonne or more, or nine or more passengers.
The FBT rules and deduction methods differ depending on which category your vehicle falls into.
Deductible Expenses
As an employer, you can claim deductions for the costs associated with owning or leasing vehicles used by employees for business purposes. These include fuel and oil, repairs and servicing, insurance, lease payments or loan interest, registration, depreciation (decline in value), and cleaning.
If the vehicle is not used exclusively for business, you must apportion these expenses based on the actual business-use percentage.
FBT and Private Use
FBT generally applies if a vehicle is provided to an employee and is available for private use. Private use includes travel between home and work, weekend use, and holiday travel. Even if the employee rarely uses the vehicle privately, the availability of the vehicle triggers an FBT obligation.
FBT Calculation Methods
The operating cost method calculates the taxable value of the benefit based on the actual operating costs of the vehicle and the percentage of private use. It requires a logbook maintained for 12 continuous weeks to determine the business versus private use split. This method typically produces a lower FBT liability for vehicles with high business use.
The statutory formula method applies a flat 20 per cent to the vehicle's base value regardless of actual use. It is simpler and does not require a logbook but may result in a higher FBT liability for vehicles that are predominantly used for business.
Employers should calculate the liability under both methods and choose the one that produces the lower result.
FBT Exemptions for Other Vehicles
Vehicles that are not classified as cars — such as utes, vans, and trucks — may be exempt from FBT if the private use is minor, infrequent, and not regular. Examples of minor private use include stopping at a shop on the way home from work, an occasional weekend trip, or a minor detour during a business journey. If the private use goes beyond what is genuinely minor and infrequent, FBT applies in the same way as for cars.
Depreciation and the Car Cost Limit
When a business owns a car used by an employee, depreciation can be claimed. However, for cars (as defined above), the depreciable cost is limited to the car depreciation cost limit, which is $69,674 for the 2024-25 income year. Any amount above this limit cannot be depreciated.
Commercial vehicles such as utes and trucks with a payload of one tonne or more are not subject to this limit, so the full purchase price can be used as the depreciable base.
GST and Motor Vehicles
If your business is registered for GST, you can generally claim GST credits for vehicle expenses where the vehicle is used in carrying on your business. However, you must adjust your GST claim if the vehicle is used for private purposes — you can only claim the business-use portion of the GST.
For cars, the GST credit is limited by the car cost limit. You cannot claim a GST credit on the portion of the purchase price that exceeds the car limit.
Leased Vehicles
If your business leases a vehicle for an employee, the lease payments are deductible as a business expense. GST credits can be claimed on the lease payments if the vehicle is used for business purposes. However, FBT may still apply depending on how the vehicle is used — the lease arrangement does not change the FBT treatment of private use.
Novated Leases
Under a novated lease arrangement, an employee leases a vehicle and the employer makes lease payments on their behalf, typically through salary packaging. FBT applies to novated leases, but the employer can still claim deductions for the lease payments and the employee's contributions can reduce the FBT liability. Novated leases require careful structuring to ensure compliance and to achieve the best tax outcome for both employer and employee.
Record-Keeping Requirements
Accurate records are essential to substantiate your expense claims, calculate the business-use percentage, and determine FBT liability. You must keep odometer readings at the start and end of each FBT year, logbooks for 12 continuous weeks (valid for five years if circumstances do not change), receipts for fuel, repairs, insurance, and all other vehicle expenses, and leasing and loan documentation.
Records must be retained for a minimum of five years. Using Xero to track vehicle expenses throughout the year makes it much easier to prepare accurate claims and FBT calculations at year end.
Common Mistakes to Avoid
The most frequent errors include not keeping odometer readings at the start and end of each FBT year, using the statutory formula method without comparing it to the operating cost method, failing to recognise and record minor private use that may trigger FBT, overclaiming private expenses as business use, not updating logbooks when they expire after five years, and failing to account for vehicles that are available for private use even when not driven.
Get Your Vehicle Deductions Right
Claiming deductions for motor vehicles used by employees is a valuable way to reduce business costs, but it requires accurate calculations, the right method selection, and strict record-keeping. At Trinity Accounting Practice, we assist businesses with correctly claiming deductions, managing FBT obligations, calculating business-use percentages, setting up logbooks and records, and ensuring full ATO compliance. Whether you run a small business with one vehicle or a growing company with a fleet, our experienced team can guide you through the rules and ensure you maximise your deductions.
Trinity Accounting Practice
Accounting Firm in Beverly Hills, Sydney
Phone: 02 9543 6804
Address: 159 Stoney Creek Road, Beverly Hills NSW 2209
Website: www.trinitygroup.com.au
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