A car can be essential to running a business and still be used privately. The tax question is how much of the relevant cost relates to earning income, which calculation method is available and what evidence supports it.
That makes the trip record at least as important as the purchase invoice. A vehicle with an impressive price tag does not automatically produce an equally impressive deduction.
First establish who owns it and who is claiming
Begin with the legal owner or lessee, the business structure and the kind of vehicle. The methods available to a sole trader claiming expenses for a car are not automatically the methods used by a company or trust.
For tax purposes, a car generally has a carrying capacity of less than one tonne and fewer than nine passengers. Other vehicles can be treated differently. The ATO’s motor vehicle deductions guidance explains why the structure and vehicle classification come first.
If an employer provides a vehicle for private use, fringe benefits tax may need separate consideration. Buying through the company does not, by itself, make private use disappear. Check the arrangement before signing finance documents, especially where an employee or director will keep the car at home.
The kilometre method is simpler, but it still needs evidence
Eligible taxpayers using the cents-per-kilometre method can claim up to 5,000 business kilometres per car for the income year. This is a limit, not an automatic entitlement. You need a reasonable basis for the distance claimed.
As verified on 8 September 2026, the rate is 91 cents per kilometre for 2026–27. The rate for 2024–25 and 2025–26 is 88 cents. Use the year in which the travel occurred, not the year you happen to lodge the return. The current rate is confirmed in the ATO’s 2026 determination information.
The rate covers the relevant car running costs, so you cannot add fuel, insurance or depreciation again under that method. The ATO’s business kilometre guidance explains the calculation and records.
Illustrative example: An eligible sole trader supports 3,200 business kilometres for 2026–27. At 91 cents, the calculation is $2,912. That is an income tax deduction, not $2,912 cash back. The actual tax effect depends on the taxpayer’s circumstances, and fuel cannot be added again to that calculation.
A logbook is a record of use, not a diary of good intentions
The logbook method can support a claim based on the business-use portion of relevant actual car expenses. The initial logbook generally covers at least 12 continuous weeks that represent normal use. It needs journey details and odometer readings, supported by expense records.
A logbook can generally be used for up to five years, but changes in use can require a fresh assessment or new logbook. A representative period from an old role may not describe your present business. Follow the ATO’s business logbook guidance when setting up the record.
Write descriptions that mean something several months later. “Client meeting, Parramatta” is more useful than “work”. Capture the purpose while you still remember it. Keep invoices for servicing, insurance and other relevant costs in the same vehicle folder.
Do not choose a conveniently busy period and assume it represents the whole year. Holidays, a change of office, a new contract or another household vehicle can alter the pattern. Tell your accountant what changed so the business-use percentage is supportable.
Check the journey before counting the kilometres
Ordinary travel between home and a regular workplace is generally private. Exceptions can depend on the particular work arrangement, so having an ABN or answering emails at home does not automatically make every departure a business trip.
For a mixed journey, record what happened rather than classifying the whole day as business. A client appointment followed by a personal detour needs a more careful explanation than a single broad entry.
The ATO’s small-business vehicle guide is a useful reference when deciding which records belong in the file.
Before buying the next vehicle
Compare the total cost of ownership, finance commitments and expected business use. Ask separately about income tax deductions, GST, depreciation limits and any FBT exposure. These are related calculations, not one universal percentage applied to the invoice.
Then make record keeping easy enough to maintain: a logbook app or paper record you actually use, a folder for costs and a reminder for odometer readings. A modest claim with clear evidence is far easier to stand behind than a large estimate reconstructed from memory at tax time.
Target Advisory 