How to Claim Car Expenses for Your Business: ATO Methods Explained (2025-26)

For many sole traders, the car is one of the largest business expenses they have. Yet it's also one of the most commonly claimed incorrectly — either overclaimed (including personal travel), underclaimed (not knowing the full scope of what counts), or just handled with the wrong method.

There are two ATO-approved methods for claiming car expenses as an individual or sole trader. This guide explains both, when each makes sense, what records you need, and walks through a real example comparing them.

Quick answer: The two ATO methods are cents per km (simple, max 5,000 km, 88c/km for 2024-25) and logbook (more records, no km cap, claim actual costs based on a business-use percentage). The logbook method usually wins for high-mileage business drivers. Your daily commute to a fixed workplace is never deductible.

This is general information, not tax advice — see your registered tax agent for your specific situation.

Source: ato.gov.au — Work-related car expenses

What Counts as a Business Car Expense?

Before we get into the methods, it's worth being clear on what business travel actually is — because the ATO's definition is stricter than most people expect.

Deductible Business Travel

  • Driving between two workplaces (e.g., you have a home office and also rent a workshop)
  • Visiting clients, suppliers, or project sites
  • Picking up supplies, equipment, or materials
  • Attending business meetings, conferences, or training
  • Travel to a different work location from your regular workplace

NOT Deductible: The Commuting Trap

Travel between your home and your regular, fixed workplace is personal travel — not a business expense. This catches a lot of people out.

Example: You run a plumbing business and every morning you drive from home to your depot to pick up the van. That drive home-to-depot is a commute. It's not deductible, even though you need to do it for work.

However, if you drive directly from home to a client's site (not your regular workplace), that trip may count as business travel.

The rules around home-to-work travel can be complex, especially if your home is also your principal place of business. Get advice if you're unsure.

Method 1: Cents per Kilometre

How It Works

You claim a set rate per kilometre for business kilometres driven. No receipts needed for running costs — the rate is meant to cover everything.

  • Rate for 2024-25: 88 cents per km
  • Rate for 2025-26: Check the current ATO rate at ato.gov.au — it's reviewed each year
  • Maximum claim: 5,000 business km per year
  • Maximum deduction (at 88c): $4,400

Records Required

You don't need a logbook, but you do need to be able to demonstrate:

  • How you calculated your business km figure
  • That those were genuinely business trips

A diary or calendar noting business trips, distances, and purpose is sufficient. The ATO has challenged claims where people could not reconstruct any supporting evidence.

Who It Suits

  • Lower-mileage business drivers (under 5,000 km of business use per year)
  • Sole traders who want simplicity and minimal recordkeeping
  • Part-time business vehicles where the maths favours the flat rate

Method 2: Logbook

How It Works

You track every trip in your car for a continuous 12-week period to establish your business use percentage. That percentage is then applied to your total car running costs for the year.

The 12-Week Logbook

Your logbook must record, for every trip during the 12-week period:

  • Date
  • Odometer readings at start and end
  • Destination
  • Purpose of trip (specifically noting whether it's business or private)
  • Total km travelled

At the end of 12 weeks, you divide business km by total km to get your business use percentage.

Example: Over 12 weeks, your total km = 6,000. Business km = 3,600. Business use percentage = 3,600 / 6,000 = 60%

That 60% applies to the full year's car costs.

What Car Costs Can You Claim?

Under the logbook method, you apply the business percentage to all actual vehicle expenses:

  • Fuel and oil
  • Registration and CTP insurance
  • Comprehensive insurance
  • Servicing and repairs
  • Tyres
  • Loan interest (if the car is financed)
  • Depreciation (decline in value)

You keep the receipts for all these. The business percentage is applied to the total.

How Long Is the Logbook Valid?

A logbook is valid for five years, provided your circumstances don't change materially (same car, similar driving patterns). If you buy a new car or your business use changes significantly, you need a new logbook.

Records Required

  • Completed logbook (the 12-week record)
  • Annual odometer readings
  • Receipts for all car expenses
  • Documentation of depreciation calculations

Which Method Gets You More? A Real Example

Tom is an electrician. He drives a 3-year-old dual-cab ute. His annual car costs are:

Expense Annual Cost
Fuel $5,800
Registration $900
Insurance $1,400
Servicing $1,200
Loan interest $4,200
Depreciation $6,500
Total $20,000

He drives 28,000 km per year total. About 18,000 km are for work (visiting sites, picking up materials, supplier visits). That's a 64% business use.

Cents per Kilometre Method

Max claim: 5,000 km × $0.88 = $4,400

Logbook Method

Business use: 18,000 / 28,000 = 64% Deduction: $20,000 × 64% = $12,800

Difference: $8,400 more deduction with the logbook method.

At a 34.5% marginal tax rate (income between $45,001 and $120,000 in 2025-26), that's roughly $2,898 in tax savings from keeping a logbook.

For a tradie with high car expenses and high business use, the logbook method is worth the extra work.

Electric Vehicles

The same two methods apply to electric vehicles. You still use either cents per km or the logbook method. For electricity costs under the logbook method, you need to calculate the cost per km of charging your vehicle and apply it to business km.

The ATO has published guidance on calculating EV electricity costs — refer to current ATO guidance as this is an evolving area.

There's a separate FBT exemption for plug-in hybrid and battery electric vehicles that applies to employees, but as a sole trader you don't have FBT obligations in the same way.

Novated Leases

If you've set up a novated lease arrangement, the tax treatment is different from a standard business car claim. Novated leases are typically relevant to employees, not sole traders — but if you have an unusual arrangement, get specific advice from your accountant rather than applying the methods above.

Motorcycles and Other Vehicles

The cents per km and logbook methods apply specifically to motor vehicles (cars and vehicles under 1 tonne or fewer than nine seats). For motorcycles and larger vehicles (trucks, vans), different rules apply. Check current ATO guidance for commercial vehicles.

Common Mistakes

Claiming the commute. As explained above — daily home-to-work travel is not business travel.

Not keeping a logbook and claiming high km. If you claim 4,800 km under the cents per km method year after year with no records, that's a red flag. Keep at least basic diary records.

Claiming 100% of a dual-use vehicle. Unless your car is literally never used privately, the ATO expects a realistic business use percentage.

Failing to keep fuel receipts. Under the logbook method, you need receipts for every expense you're claiming. A credit card statement alone may not be sufficient for ATO scrutiny.

Applying last year's cents per km rate. The rate changes. Always check the current ATO-published rate for the year you're lodging.

Tools That Make This Easier

Tracking car expenses throughout the year — logging business trips, storing fuel receipts, recording odometer readings — is the part most people neglect until tax time. A simple system kept consistently during the year is worth far more than a reconstructed spreadsheet in June.

Summed handles BAS prep automatically — try it free for 30 days at $9/mo. Start free →

FAQ

Q: Do I need a separate logbook for each car?

A: Yes. Each vehicle requires its own logbook if you're claiming using the logbook method.

Q: Can I use the logbook method for one car and cents per km for another?

A: You can only use one method per car per year. Different cars in the same year can use different methods.

Q: My logbook is from 2021. Is it still valid?

A: A logbook is valid for five years from the last day of the 12-week period, provided your business use pattern hasn't changed materially. If you're still using the same car for roughly the same purpose, it should still be valid. If you've changed jobs, changed vehicles, or your business use percentage has shifted, you need a new logbook.

Q: Can I claim a car I'm leasing?

A: Yes. The method is the same — the lease payments, insurance, fuel and other running costs are used in place of loan interest and depreciation. Keep all lease documentation.

Q: I only use Uber for business trips and don't own a car. Can I still claim?

A: Yes — Uber, taxi, and rideshare costs for business travel are deductible. They're not subject to the cents per km or logbook rules (those are for cars you own or lease). Keep the receipts from each trip and note the business purpose.

Q: The car is in my partner's name. Can I still claim?

A: Generally, you can only claim car expenses for a car you own or have use of. If the car is in a spouse's name but you use it exclusively for business, there may be a basis for a claim — but it's complex. Get advice.

Q: Can I claim parking and tolls?

A: Yes. Work-related parking and tolls are deductible separately from the cents per km rate (which covers running costs). Keep receipts or toll account statements.

Q: What if I use my car for Uber ridesharing as well as my regular business?

A: If you're already keeping a logbook, every trip goes in the log — Uber trips and your other business trips are all captured. The Uber platform income and your regular business income are both taxable. Your car deduction covers all legitimate business use across both activities.