Individuals, including sole traders, and partnerships (where at least one of the partners is an individual) can use the cents per kilometre method for car-related work or business expenses.
The cents per kilometre method is a simple way to work out how much you can deduct for car-related work or business expenses. Only individuals, including sole traders, or partnerships (where at least one partner is an individual) can use the cents per kilometre method. So if you operate your business through a company or trust, the business will have to use the actual costs method to claim car and vehicle running expenses.
The cents per kilometre rate takes into account all your car running expenses (including registration, fuel, servicing and insurance) and depreciation.
How does the cents per kilometre method work?
To work out how much you can claim as a deduction, you simply multiply the total work/business kilometres you travelled by the appropriate rate.
The rate for the 2022-23 tax year is 78 c/ km.
The rate for the 2023-24 tax year is 85 c/km.
The rates are usually updated each year.
Importantly, you cannot claim more than 5,000 work/business kilometres per car, per year. So if you use your car for more than 5,000 kilometres a year for work or business purposes, you will need to use the logbook method to calculate your deductible car expenses. You don’t need written evidence to show exactly how many kilometres you travelled (although the ATO may ask you to show how you worked out your work/business kilometres, for example, diary records).
What is considered a “car”?
The cents per kilometre (and logbook) method only applies to cars. For tax purposes, a car is a motor vehicle (including a 4-wheel drive) designed to carry a load of less than one tonne and fewer than 9 passengers. This means utes are generally not cars for tax purposes and thus you cannot use the cents per kilometre (or logbook) method to calculate your deductible ute expenses. You will have to use the actual costs method instead.
Apportioning private use
If you use a motor vehicle for both work/business and private use, you must be able to correctly identify and justify the percentage that you are claiming as work/business use. You cannot claim a deduction for the percentage that is for private use. This is an area where the ATO often sees errors made. You can use a logbook or diary to record private versus work/business travel. Note that travelling between your home and your place of work/business is considered to be private use, unless your home is considered to be your place of work, or you operate a home-based business, and your trip was for work/business purposes.
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