Car for Business Use: What Motor Vehicle Expenses Can Your Business Claim?

Using a car for business use can create valuable tax deductions, but the amount you can claim depends on your business structure, the type of motor vehicle and how much of its use is genuinely connected with the business.

For a business owner, vehicle expenses can include fuel, registration, insurance, repairs, servicing, lease payments and depreciation. The key is separating business use from private use and using the correct calculation method.

This guide explains how to claim motor vehicle expenses, how the cents per kilometre and logbook methods work, and what records you need to support your tax deduction.

What motor vehicle expenses can you claim?

If you use a motor vehicle for business purposes, you may be able to claim expenses associated with operating it. You can claim expenses only where the vehicle use and relevant tax rules support the deduction.

Common motor vehicle expenses include:

• fuel or electricity
• registration and insurance
• servicing, repairs and tyres
• cleaning
• lease payments
• interest on a car loan
• depreciation or decline in value, where applicable.

These running costs are generally deductible only to the extent they relate to business use.

If the same car is used for both business and private use, you need to separate the private use. For example, if your records support a business use percentage of 70%, you may generally claim 70% of eligible actual car expenses under a method that uses actual expenses.

You cannot simply claim the entire cost of running a business car because it is registered in the business name.

What counts as business use of a motor vehicle?

Business use generally includes trips undertaken as part of carrying on your business, such as:

• travelling between business premises or worksites
• visiting clients or suppliers
• attending business meetings
• collecting stock, supplies or equipment
• making deliveries
• travelling to see your registered tax agent about business tax matters.

These trips are usually different from ordinary commuting.

Travel between home and your usual place of work is generally considered private use. This applies even if you do some work at home before leaving.

Different rules can apply where your home is genuinely a place of business. For a home based business, travel from that business location to another place for business purposes may be deductible depending on the circumstances.

Personal trips, school drop-offs and other travel for private purposes should not be included in your business usage.

Where a motor vehicle has both business and personal use, keeping clear records is the best way to support the business portion you claim.

The method you use depends on your business structure

There is no single calculation method for every business.

How you claim motor vehicle expenses depends on your business structure and whether the vehicle meets the Australian Taxation Office definition of a car.

For tax purposes, a car is broadly a motor vehicle designed to carry fewer than nine passengers and a load of less than one tonne. Many passenger vehicles fall within this definition.

Sole traders and eligible partnerships

Sole traders and partnerships that include at least one individual can generally use one of two ATO approved methods for a car:

1. the cents per kilometre method
2. the logbook method.

Sole traders cannot automatically choose these methods for other vehicles that fall outside the definition of a car.

Companies and trusts

A company or trust generally claims the actual costs it incurs in running a motor vehicle for business purposes.

This means the business needs evidence of its actual vehicle expenses. Companies and trusts do not use the two individual car calculation methods described below.

If a company vehicle or business car is available for an employee's private use, fringe benefits tax may also need to be considered.

Cents per kilometre method for 2026–27

For the 2026–27 income year, the cents per kilometre rate is 91 cents for each eligible business kilometre.

Sole traders and eligible partnerships can claim up to 5,000 business kilometres per car, per income year, using the cents per kilometre method.

At the maximum:

5,000 km × $0.91 = $4,550

The cents per kilometre method already incorporates the car's running costs, including fuel, registration, insurance, repairs, maintenance and depreciation.

That means you cannot separately claim depreciation, fuel or registration again when using this approach.

You do not need receipts for each of those car costs with this approach, but you still need to show how you calculated your business travel. A diary, calendar or other records of business journeys can help.

If your business travel exceeds 5,000 kilometres, the cents per kilometre method is capped at 5,000 kilometres. Sole traders wanting to claim car expenses for more than this will generally need to consider the logbook method.

How does the logbook method work?

The logbook method allows eligible sole traders and partnerships to claim the business use portion of their actual car expenses.

The logbook method requires a continuous 12-week record that is representative of how the car is used over the year.

Your logbook should record:

• when the logbook period starts and ends
• odometer readings at the beginning and end
• the date and purpose of each business journey
• odometer readings for each journey
• kilometres travelled
• your resulting business use percentage.

A logbook is generally valid for up to five income years, provided your business usage has not changed materially. You should also keep opening and closing odometer readings for each year you rely on it.

You then apply the business use percentage to eligible costs.

For example, if your logbook establishes 75% business use and your eligible actual car expenses for the year are $12,000:

$12,000 × 75% = $9,000 tax deduction

The logbook method may be more suitable where a car has substantial business use or high vehicle costs, but it requires more detailed records.

What is the actual cost method?

For other vehicles, and generally for companies and trusts, deductions are based on actual expenses rather than the two methods available to eligible individuals using a car.

The actual cost method means keeping records of the motor vehicle expenses the business actually incurs and claiming the deductible business portion.

Actual expenses can include fuel, registration, insurance, servicing, repairs, lease payments and depreciation where the rules allow it.

For other vehicles used for both business and private purposes, you still need a reasonable basis for separating business use from private use. A diary or similar vehicle record can help substantiate that business use percentage. If you replace it with a similar vehicle and your usage changes, review the records rather than assuming the old percentage still applies.

The actual cost method may therefore be the only option for some businesses or vehicle types.

Can you claim depreciation on a business vehicle?

Where the relevant rules allow it, a business may be able to claim depreciation on the business use portion of a motor vehicle.

However, depreciation cannot be claimed separately when it is already incorporated into the kilometre rate.

Depreciation rules can also be affected by the cost of the car and whether small business simplified depreciation rules apply.

The 2026–27 car limit

For 2026–27, the ATO car limit is $69,883.

The car limit restricts the amount that can be used to calculate depreciation for certain passenger vehicles. Broadly, it applies to a car designed to carry fewer than nine passengers and less than one tonne.

If the purchase price is above the car limit, the excess generally cannot be included when working out depreciation.

The car limit can also affect the maximum GST credit available when buying a car above the limit.

For 2026–27, the maximum GST credit is $6,353, subject to the normal goods and services tax rules and the business's entitlement to claim GST credits.

Luxury car tax can also become relevant to a business vehicle purchase where the vehicle exceeds the applicable luxury car tax threshold.

These purchase rules are separate from the day-to-day motor vehicle expenses covered in this article. For more detail on the purchase price, GST, financing and ownership considerations, read Buying a Car Through Your Business: Here's What You Need to Know.

Can a vehicle qualify for the instant asset write off?

Eligible small business entities with aggregated annual turnover of less than $10 million can access the permanent $20,000 instant asset write off from 1 July 2026.

This means an eligible small business may be able to immediately deduct the business use portion of the full cost of an eligible asset costing less than $20,000.

For a business vehicle, whether the instant asset write off is available depends on the asset's cost and the depreciation rules that apply. Assets costing $20,000 or more may instead be allocated to the small business depreciation pool where the simplified depreciation rules apply.

The instant asset write off is sometimes described more generally as a business tax write off and can support cash flow, but it does not mean every business vehicle purchase can be immediately deducted. The eligibility rules, cost threshold and business use still matter.

If you pay upfront for a vehicle, that also does not automatically mean its entire purchase price becomes an immediate tax deduction.

What about fringe benefits tax and private use?

Where a business owns or leases a vehicle and makes it available to an employee for private use, fringe benefits tax (FBT) may apply.

This is particularly relevant where a company car can be taken home or used for personal trips.

For cars, the taxable value of the fringe benefit may be calculated using the statutory formula method or operating cost method, depending on the circumstances.

Different rules and exemptions can apply to some commercial and other vehicles. Salary sacrifice arrangements and eligible electric vehicles can also create separate fringe benefits considerations.

Because FBT is a different issue from claiming day-to-day vehicle expenses, we cover it in more detail in Commercial Vehicles: ATO & FBT Explained.

Can you claim parking and tolls?

Parking fees and road tolls incurred during deductible business travel may also qualify for a tax deduction.

These expenses are generally considered separately from the car expenses incorporated into the cents per kilometre rate.

However, parking associated with ordinary commuting between home and your regular workplace is generally private.

What records should you keep?

The records required depend on how you claim motor vehicle expenses.

For the cents per kilometre method, you need records that show how you calculated your eligible business kilometres.

For the logbook method, you need a valid logbook plus records supporting the expenses being claimed.

For the actual cost method, keep invoices, receipts and other evidence of the actual expenses incurred, as well as records that support the business portion where there is private use.

Useful records can include:

• fuel and charging receipts
• registration and insurance documents
• servicing and repair invoices
• lease agreements
• car loan statements
• purchase documents and tax invoices
• logbooks, diaries and odometer records.

Good record keeping makes claiming car expenses easier, helps you claim deductions correctly and supports the amount if the Australian Taxation Office asks how it was calculated.

Common mistakes when claiming motor vehicle expenses

Treating all use as business use

A vehicle being owned by the business does not make all travel deductible. If it is used for both business and personal use, the private component needs to be considered.

Claiming ordinary commuting

Travel between home and a regular workplace is generally private use rather than business travel, subject to limited exceptions.

Claiming the same expense twice

If you use the cents per kilometre method, the rate already includes eligible running costs and depreciation. You cannot claim those car expenses separately.

Using the wrong calculation method

Sole traders, partnerships, companies and trusts do not necessarily claim motor vehicle expenses in the same way. The vehicle classification and business structure both matter.

Assuming a purchase creates an immediate deduction

Buying a car does not automatically allow you to claim the full cost as a tax deduction. The car limit, depreciation rules and instant asset write off rules may need to be considered.

Not updating your business use percentage

If your pattern of vehicle use changes significantly, an older logbook may no longer represent your current business usage. You may need a new record to support the percentage being claimed.

Getting your motor vehicle deductions right

Motor vehicle expenses can provide legitimate tax benefits, but the rules depend on who owns the vehicle, how it is used, the type of vehicle and your business structure.

For sole traders in particular, choosing between the cents per kilometre method and logbook method can make a meaningful difference to the deduction. Companies and trusts need to focus on their actual vehicle expenses and record keeping, while any private use of a company car may create separate FBT obligations.

A registered tax professional can help you identify the appropriate method, check your business use percentage and make sure you claim deductions that are properly supported.

If you would like help understanding the tax obligations for your business vehicle, contact Bonerath & Co.

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