How to Claim Motor Vehicle Expense Deductions for Your Business in Australia

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Introduction

Motor vehicle expenses are among the most commonly claimed deductions by businesses in Australia. Whether you're a sole trader driving between client meetings or a company providing vehicles for employee use, understanding what you can claim—and how—is essential to maximise your deductions while staying compliant with the Australian Taxation Office (ATO). This comprehensive guide breaks down everything you need to know about motor vehicle expense deductions for your business, based on the ATO’s latest guidelines.

1. Understanding Motor Vehicle Expense Deductions

The ATO allows businesses to claim deductions on expenses related to motor vehicles that are used for business purposes. However, there are rules about the types of vehicles that qualify, what constitutes valid business use, and how to calculate the deductible portion accurately.

1.1 Types of Vehicles

The ATO separates vehicles into two main categories:

• Cars: Motor vehicles (excluding motorcycles) designed to carry a load of less than one tonne and fewer than nine passengers.
• Other Vehicles: Including motorcycles, vans, utilities, or trucks designed to carry more than one tonne or nine or more passengers.

Your method of claiming will depend on which type your vehicle falls under.

2. What Motor Vehicle Expenses Can Be Claimed

You can claim deductions for the costs associated with running and maintaining your motor vehicle for business purposes. These include:

• Fuel and oil
• Repairs and servicing
• Interest on motor vehicle loans
• Lease payments
• Insurance premiums
• Registration
• Depreciation (decline in value)
• Cleaning

However, if a vehicle is used for both business and personal purposes, you can only claim the portion used for business.

3. Methods of Calculating Deductions

3.1 For Cars (Sole Traders and Partnerships)

There are two main methods:

3.1.1 Cents per Kilometre Method

• Only available for cars.
• The rate for 2023–24 is 85 cents per kilometre (up to 5,000 business km per car).
• Covers all vehicle running expenses.
• No need to keep detailed records of each expense, but you must be able to show how you calculated your business kilometres.

3.1.2 Logbook Method

• Must keep a logbook for 12 continuous weeks.
• Record odometer readings and details of each business journey.
• Calculate the percentage of business use and apply it to your total vehicle expenses.
• Records must be kept for 5 years.

3.2 For Other Vehicles (Vans, Trucks, Motorcycles)

Use the actual cost method, where you:

• Keep detailed receipts and records.
• Record the proportion of business vs private use.
• Claim a deduction for the business-use percentage of all actual expenses.

3.3 For Companies and Trusts

• Businesses can claim the full cost of operating a vehicle if it’s only used for business.
• If an employee or associate uses the vehicle for private purposes, it may be subject to Fringe Benefits Tax (FBT).

4. Fringe Benefits Tax (FBT) Implications

If a vehicle is provided to employees and is available for private use, FBT may apply. Employers must:

• Keep detailed logbooks and odometer readings.
• Submit an FBT return if required.
• Consider using the statutory formula or operating cost method to calculate the taxable value of the benefit.

5. Depreciation and the Car Limit

You can claim depreciation (decline in value) on your car. However, the ATO sets a car cost limit each year. For 2023–24, the limit is $68,108. If your vehicle cost exceeds this amount, depreciation must be based on this threshold.

6. Substantiating Your Claims

Accurate record-keeping is crucial. You should keep:

• Logbooks
• Fuel receipts
• Service invoices
• Insurance documents
• Registration papers
• Loan agreements
• Odometer readings

These records must be kept for at least five years and may be required in case of an audit.

7. Common Scenarios

7.1 Sole Trader Using Personal Car

• If you drive your personal car for business tasks like attending meetings or buying supplies, you can use either the cents per kilometre or logbook method.

7.2 Company Providing Vehicle to Employees

• The company can claim the full running costs.
• Must assess FBT liability if the vehicle is available for personal use.

7.3 Mixed-Use Vehicles (e.g., Vans for Tradespeople)

• Maintain a logbook to record business vs personal trips.
• Claim only the business portion using the actual cost method.

8. Home-Based Businesses and Motor Vehicles

Travel between your home and other locations can be deductible if your home is your principal place of business. However, if you simply do some work from home occasionally, this may still count as private travel.

9. Common Mistakes to Avoid

• Overestimating business use
• Not keeping accurate records
• Claiming costs for vehicles not owned by the business
• Ignoring FBT obligations for employee-used vehicles
• Failing to update logbooks every 5 years

10. How Trinity Accounting Practice Can Help

Trinity Accounting Practice is here to help you maximise your motor vehicle deductions while staying ATO-compliant. We provide:

• Expert tax advice for businesses and sole traders
• Assistance in choosing the best method for your situation
• Help with record-keeping and substantiating claims
• FBT advice and compliance services

Whether you’re a tradie using a ute, a consultant driving your car to client meetings, or a business with a vehicle fleet, we’ve got the knowledge and experience to support your tax needs.

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Conclusion

Claiming deductions for motor vehicle expenses is a valuable way to reduce your taxable income. However, it's critical to follow ATO guidelines and keep excellent records. With the right approach, and support from Trinity Accounting Practice, you can ensure you're getting the most from your deductions without running into compliance issues.

Need help with your motor vehicle tax deductions?

👉 Trinity Accounting Practice
✅ Accounting Firm in Beverly Hills
☎️ 02 9543 6804
📍 159 Stoney Creek Road Beverly Hills NSW 2209
🌐 www.trinitygroup.com.au
📅 Weekend & after-hours appointments available!
📅 Booking Link https://calendly.com/ramy-hanna.

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References:

• Australian Taxation Office. (2024). "Deductions for motor vehicle expenses." https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/income-and-deductions-for-business/deductions/deductions-for-motor-vehicle-expenses
• Australian Taxation Office. (2024). "Motor vehicle and car expenses." https://www.ato.gov.au/individuals-and-families/income-deductions-offsets-and-records/deductions-you-can-claim/cars-transport-and-travel/motor-vehicle-and-car-expenses
• Australian Taxation Office. (2024). "Fringe Benefits Tax." https://www.ato.gov.au/business/fringe-benefits-tax/
• Business.gov.au. "Tax Deductions for Business." https://business.gov.au/finance/tax/tax-deductions

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