How to Claim Motor Vehicle Expense Deductions for Your Business in Australia
Motor vehicle expenses are among the most commonly claimed deductions by Australian businesses. Whether you are a sole trader driving between client meetings or a company providing vehicles for employee use, understanding what you can claim and how to calculate it correctly is essential to maximise your deductions while staying compliant with the ATO.
This guide from Trinity Accounting Practice covers everything you need to know about motor vehicle expense deductions, including the different calculation methods, FBT implications, depreciation limits, and record-keeping requirements.
Types of Vehicles
The ATO separates vehicles into two main categories, and the method you use to calculate your deduction depends on which category your vehicle falls into.
Cars are motor vehicles (excluding motorcycles) designed to carry a load of less than one tonne and fewer than nine passengers. Most sedans, hatchbacks, SUVs, and small station wagons fall into this category. Other vehicles include motorcycles, vans, utilities, and trucks designed to carry one tonne or more, or nine or more passengers.
What Motor Vehicle Expenses Can Be Claimed
Deductible expenses for vehicles used for business purposes include fuel and oil, repairs and servicing, interest on motor vehicle loans, lease payments, insurance premiums, registration, depreciation (decline in value), and cleaning.
If a vehicle is used for both business and personal purposes, you can only claim the portion that relates to business use. Accurate records are essential to substantiate the business-use percentage.
Methods for Calculating Deductions
Cents per Kilometre Method (Cars Only)
This method is available for cars used by sole traders and partners. The rate for the 2024-25 income year is 88 cents per kilometre, up to a maximum of 5,000 business kilometres per car per year. This produces a maximum deduction of $4,400.
The cents per kilometre rate covers all vehicle running expenses — you cannot claim any additional car costs on top of this rate. You do not need to keep detailed records of each expense, but you must be able to show how you calculated your business kilometres using a reasonable basis.
Logbook Method (Cars)
The logbook method requires you to keep a logbook for 12 continuous weeks, recording odometer readings and the details of each business journey. This establishes your business-use percentage, which you then apply to your total actual vehicle expenses for the year.
The logbook remains valid for five years, provided your pattern of use does not change significantly. If your circumstances change — for example, you move to a new location or change the nature of your work — you must start a new logbook. This method generally produces a larger deduction for vehicles with high business use.
Actual Cost Method (Other Vehicles)
For vehicles that are not classified as cars — such as vans, utes, trucks, and motorcycles — you use the actual cost method. Keep detailed receipts and records of all vehicle expenses, record the proportion of business versus private use, and claim the business-use percentage of all actual expenses.
Companies and Trusts
Businesses operating through a company or trust can claim the full cost of operating a vehicle if it is used exclusively for business. If an employee or associate uses the vehicle for private purposes, FBT may apply and the private-use component must be accounted for.
FBT Implications
If a vehicle is provided to an employee and is available for private use, FBT generally applies. Employers must keep detailed logbooks and odometer readings, submit an FBT return if required, and calculate the taxable value of the benefit using either the statutory formula method (20 per cent of the car's base value) or the operating cost method (actual costs multiplied by private-use percentage).
The FBT rate is 47 per cent and the FBT year runs from 1 April to 31 March. Getting FBT wrong can result in significant additional tax liabilities. Our business advisory team can help you determine which method produces the best outcome and ensure your FBT reporting is accurate.
Depreciation and the Car Cost Limit
You can claim depreciation on vehicles owned by your business. However, for cars (as defined above), the ATO sets a car depreciation cost limit each year. For the 2024-25 income year, this limit is $69,674. If your car costs more than this amount, depreciation must be calculated on $69,674 rather than the actual purchase price.
Commercial vehicles such as utes, vans, and trucks with a payload capacity of one tonne or more are not subject to this limit. The full purchase price can be used as the depreciable base, which is a significant advantage for tradies and construction businesses that commonly use these vehicles.
Home-Based Businesses
If your home is your principal place of business, travel from your home to other work locations — such as client sites, suppliers, or meetings — may be deductible. However, if you simply work from home occasionally but have a separate main place of business, travel from home to that location is generally considered private commuting and is not deductible.
The distinction depends on whether your home genuinely qualifies as your principal place of business. This requires a dedicated area used regularly and exclusively for business purposes. Speak to our team to confirm whether your home qualifies.
GST on Motor Vehicles
If your business is registered for GST, you can claim GST credits on vehicle expenses to the extent the vehicle is used for business. For cars, the GST credit on the purchase price is limited by the car cost limit — you cannot claim GST on the portion exceeding $69,674. For other vehicles, the full GST credit is available provided the vehicle is used for business purposes.
Record-Keeping Requirements
Accurate records are essential to substantiate your claims. You should keep logbooks (for the logbook method), fuel receipts, service and repair invoices, insurance documents and registration papers, loan agreements or lease contracts, and odometer readings at the start and end of each period.
These records must be kept for at least five years from the date you lodge the relevant return. Using Xero to track vehicle expenses throughout the year makes year-end reporting straightforward and ensures you have all the documentation you need in case of an ATO review.
Common Mistakes to Avoid
The most frequent errors include overestimating business use without adequate records to support the claim, not keeping accurate logbooks or allowing them to expire, claiming costs for vehicles not owned or leased by the business, ignoring FBT obligations when employees use business vehicles privately, using the cents per kilometre method when the logbook method would produce a significantly larger deduction, and failing to update logbooks every five years.
Maximise Your Motor Vehicle Deductions
Claiming deductions for motor vehicle expenses is one of the most effective ways to reduce your taxable income. However, it requires the right method selection, accurate calculations, and thorough record-keeping.
At Trinity Accounting Practice, we help sole traders and businesses across Sydney and Australia choose the best claiming method for their situation, set up logbooks and record-keeping systems, calculate business-use percentages accurately, manage FBT compliance for employer-provided vehicles, and ensure every vehicle deduction is claimed correctly. Whether you are a tradie with a ute, a consultant driving to client meetings, or a business with a vehicle fleet, we have the experience to support your tax needs.
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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Disclaimer: Information provided on this website is intended as a general overview only and does not replace professional advice tailored to your personal circumstances.
