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Motor Vehicle Tax Deductions Explained

Learn about motor vehicle tax deductions in Australia and how you can potentially save on your tax return by claiming eligible expenses.
Published on December 4th, 2020
  Written by 
Adrian Edlington
Adrian Edlington is PR & Communications Manager at Savvy. With a keen interest in personal finance, car loans, the mortgage industry, cost of living pressures, electric vehicles and renewable technology, Adrian's research includes conducting primary data surveys and analysis of up-to-the-minute secondary Australian data sources. His work on behalf of Savvy has been featured on ABC.net.au The Conversation, the Sydney Morning Herald, AFR, News.com.au, The Age, Herald Sun, Adelaide Now, SBS On The Money, 7News, Car Expert, Which Car, Drive.com.au and more. In his spare time, Adrian enjoys mountain biking and business podcasts.
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Bill Tsouvalas

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Bill Tsouvalas
Bill Tsouvalas is the managing director and a key company spokesperson at Savvy. As a personal finance expert, he often shares his insights on a range of topics, being featured on leading news outlets including News Corp publications such as the Daily Telegraph and Herald Sun, Fairfax Media publications such as the Australian Financial Review, the Seven Network and more. Bill has over 15 years of experience working in the finance industry and founded Savvy in 2010 with a vision to provide affordable and accessible finance options to all Australians. He has built Savvy from a small asset finance brokerage into a financial comparison website which now attracts close to 2 million Aussies per year and was included in the BRW’s Fast 100 in 2015 as one of the fastest-growing companies in the country. He’s passionate about helping Australians make financially savvy decisions and reviews content across the brand to ensure its accuracy. You can follow Bill on LinkedIn.
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Owning a car in Australia comes with a range of expenses, but did you know you might be eligible to claim some of these costs on your tax return? This blog dives into the world of motor vehicle tax deductions, helping you navigate the Australian Taxation Office's (ATO) regulations and maximise your potential savings come tax time.

What are motor vehicle tax deductions and can I claim them?

Motor vehicle tax deductions refer to expenses associated with owning and operating a vehicle that are eligible for tax relief or deductions. These deductions are available to employees, sole traders and businesses in Australia using their vehicles for work-related purposes, subject to criteria set by the ATO.

If you own or lease a car, you may be able to claim expenses for trip related to work. This does not generally cover travel between your home and place of work, but you can claim a tax deduction for trips to:

  • Client meetings and conferences:travel to meet with clients, attend work conferences or participate in off-site work meetings.
  • Make deliveries and pick-ups:making deliveries or picking up essential supplies for work.
  • Commute between jobs:travelling between multiple workplaces if you have more than one job.
  • Visit clients:travelling from your regular office to visit a client's location for work purposes, then returning to the office or directly home.
  • Temporary worksites:travelling directly from your home to a temporary worksite (not your regular office) to perform your duties, and then returning to the office or directly home (this doesn't apply if the temporary site becomes your regular workplace).

If you use a car under a salary sacrifice or novated lease arrangement, you cannot claim running costs, though you may be able to claim additional expenses. 

What expenses can be claimed?

Not all car expenses qualify for deductions. Here's what the ATO considers claimable:

  • Fuel and oil: the cost of keeping your car running.
  • Repairs and servicing: maintaining your car in good condition.
  • Registration: annual registration fees paid to your state or territory.
  • Car insurance: comprehensive or third-party car insurance premiums.
  • Car loan interest: the interest portion of your car loan repayments.
  • Lease payments: lease payments for a car used for work.
  • Depreciation: the decline in value of your car over time.
  • Parking and tolls: costs incurred for parking and tolls during work trips – though not for parking at your regular workplace.

Note that expenses like licence renewal, fines and penalties are not tax deductible. 

How do I calculate motor vehicle tax deductions?

The ATO offers two main methods for calculating car expense deductions:

1. Cents per kilometre method

This method takes a simplified approach where you claim a set rate per kilometre travelled for work purposes. To calculate your deduction, multiply the number of work-related kilometres travelled by your car by the applicable rate per kilometre for the income year. For 2022–23, this is 78 cents per kilometre, increasing to 85 cents per kilometre for the 2023–24 income year.

Example: During the 2022–23 income year, Sarah travelled a total of 3,000 kilometres for her job as a real estate agent. Sarah calculated her deduction amount by multiplying the total kilometres travelled (3,000) with the rate per kilometre for that year ($0.78), giving her $2,340 in deductible car expenses.

You can claim a maximum of 5,000 work-related kilometres per car, and you must keep records to substantiate your claim. If multiple owners use the car for separate income-producing purposes, each owner can claim up to 5,000 work-related kilometres.

2. Logbook method

This is a more detailed method where you keep a logbook recording all car expenses and the percentage of work-related travel. The logbook can be kept as a physical document or electronically using the ATO’s free myDeductions tool. You must also keep all receipts and other records relating to your car expenses.

Your logbook is valid for up to five years and must cover at least 12 continuous weeks, detailing the following:

  • The destination and purpose of each journey
  • Odometer readings at the start and end of each journey
  • Total kilometres travelled during the period

If you are using the logbook method for multiple cars, ensure each vehicle has its own logbook covering the same period.

To calculate your deduction using a logbook:

  1. Determine the total kilometres travelled during the logbook period.
  2. Identify the total kilometres driven for work trips.
  3. Divide work kilometres by total kilometres and multiply by 100 (percentage) to get your work-related use percentage.
  4. Add up your total car expenses from receipts and estimates.
  5. Multiply your work-related use percentage by your total car expenses to get your deduction amount.

Example: During the 12-week logbook period, John records a total of 2,500 kilometres travelled in his car, 1,200 kilometres of which were specifically for work-related trips. To determine his work-related use percentage, John divides the work kilometres (1,200 km) by the total kilometres (2,500 km) and multiplies by 100 to get a percentage of 48%. During the same period, his total car expenses amount to $800. To calculate his deduction, John multiplies his work-related use percentage (48%) by his total car expenses ($800) to get a deduction amount of $384.

Understanding motor vehicle tax deductions can significantly benefit drivers who use their car for work in Australia, potentially reducing their taxable income and maximising savings. If you are looking to buy a car, whether you will use it for work purposes or otherwise, Savvy can help with your financing needs. Our knowledgeable team can work with you to find a car loan deal that suits your needs and budget. Get started with Savvy today!

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