Claiming Motor Vehicle Expenses

Motor vehicle expenses are one of the most common deductions for small businesses, but they’re also one of the easiest to get wrong. The way you calculate your claim depends on your business structure, the type of vehicle you use, and how much of that use is business-related.

If you use your vehicle for both work and personal reasons, you can only claim the business portion. You also need to keep records for at least five years, so choosing the right method from the start can make a big difference.

What Are Motor Vehicle Expenses?

Motor vehicle expenses are the costs associated with running and maintaining a vehicle that is used in your business. Common claimable expenses include:

• Fuel and oil

• Electricity for charging an electric vehicle

• Repairs and servicing

• Interest on a motor vehicle loan

• Lease payments

• Insurance

• Registration

• Depreciation (decline in value)

You can only claim these expenses if the vehicle is used in your business, and only for the business-use portion.

Cars vs Other Vehicles

The type of motor vehicle you drive affects how you calculate your deduction.

What Counts as a Car?

A car is a motor vehicle (including electric vehicles) designed to carry:

• Less than one tonne, and

• Fewer than nine passengers

Many four-wheel drives and some utes fall into this category.

What Is an “Other Vehicle”?

Other vehicles include:

• Motorcycles

• Minivans carrying nine or more passengers

• Utes or panel vans designed to carry one tonne or more

Expenses for these vehicles are not automatically deductible. You still need to use them in your business and only claim the business portion.

Business Structure Matters

Your business structure determines which methods you can use and what you’re entitled to claim.

Sole Traders and Partnerships

If you operate as a sole trader or partnership (where at least one partner is an individual), you can only claim expenses related to the everyday running of your business, such as travelling between job sites or visiting clients. Private travel, like school drop-offs, must be excluded.

Claiming Car Expenses

If your vehicle is classified as a car, you can choose one of the following methods.

Cents Per Kilometre Method

• Claim up to 5,000 business kilometres per car per year

• The rate for 2025–26 is 88 cents per kilometre

• This rate includes all running costs, including depreciation

• You don’t need a logbook, but you must be able to show how you calculated your kilometres

If you travel more than 5,000 business kilometres, you must use the logbook method for the entire claim.

Logbook Method

• Claim the business-use percentage of each expense

• Keep a logbook for at least 12 continuous weeks that represents your typical travel

• Record odometer readings, journey details and reasons for travel

Once established, the logbook can be used for up to five years, provided you keep yearly odometer readings. Depreciation can be claimed under this method, but only for the business portion of the vehicle.

Other Vehicles

For vehicles that are not cars, you must claim actual expenses based on receipts. You can use a diary or journal to separate business and private use. The cents per kilometre and logbook methods do not apply.

Companies and Trusts

If your business operates as a company or trust, you can only claim actual motor vehicle costs supported by receipts. These expenses must relate to the everyday running of the business, such as visiting clients or transporting goods.

Companies and trusts cannot use the cents per kilometre or logbook methods.

If a private company provides a vehicle to a shareholder or associate for non-employee use, Division 7A or fringe benefits tax may apply, which can affect deductibility.

Vehicle Ownership Considerations

Vehicle Owned or Leased by the Business

Running costs are generally deductible. If the vehicle is available for private use by an employee or their associate, fringe benefits tax may apply.

Vehicle Owned by an Employee

If an employee uses their own vehicle for work and you reimburse them or pay an allowance, your business can claim the reimbursement or allowance. Depreciation cannot be claimed by the business in this case.

Depreciation of Motor Vehicles

If you’re claiming expenses using the logbook or actual cost method, you can generally claim depreciation over time.

For the 2024–25 income year, the car cost limit for depreciation is $69,674, or the cost of the vehicle if it’s lower. If you use the cents per kilometre method, depreciation is already included and cannot be claimed separately.

Small businesses with aggregated turnover under $10 million may be eligible to use simplified depreciation rules.

Records You Need to Keep

Regardless of the method you use, you should keep:

• Loan or lease documents

• Tax invoices and receipts

• Registration papers

• Details of how you calculated your claim

You may also need:

• Kilometre records for business and private use

• Fuel, repair, servicing and insurance receipts

Good record-keeping not only supports your claim but gives you flexibility if your business grows or your structure changes.

More Information

Visit ATO Webpage

Download ATO Factsheet

Motor vehicle expenses can provide valuable deductions when claimed correctly, but the rules depend on your business structure, the type of vehicle you use, and how the vehicle is used for business. With the right method and records in place, claiming these expenses can be straightforward and compliant.

If you’d like help working out the best claiming method, setting up logbooks or records, or ensuring your motor vehicle expenses are handled correctly, contact Jess at Anytime Assist for personalised bookkeeping support.

Disclaimer:

This information is general in nature and has been provided for informational purposes only. It does not take into account your personal circumstances. You should seek advice from a registered tax or accounting professional before acting on this information.