Vehicle Expenses: What Can Your Business Claim?

Navigating vehicle deductions can be challenging. From differentiating between business and personal mileage to avoiding common mistakes like underreporting or misinterpreting tax rules, there are many potential pitfalls.  

Knowing what you can claim—and how to properly document those claims—can make a significant difference in your tax outcomes. Let’s explore the key points to help you maximise your small business’s vehicle expense deductions.  

Understanding Business vs. Personal Use 

Before diving into specific deductions, it’s crucial to differentiate between business and personal use of your vehicle. The Australian Taxation Office (ATO) is strict about separating these expenses. Only the portion of your vehicle use that relates to business activities is deductible. 

To accurately track this, maintaining a logbook is essential. Your logbook should record the date, the purpose of the trip, the distance travelled, and the vehicle’s odometer readings. This documentation will corroborate your claims and keep you compliant with ATO regulations. 

Key Vehicle Expenses You Can Claim 

1. Fuel and Oil Costs 

• You can claim the cost of fuel and oil used for business purposes. Keeping receipts or detailed records of these expenses is necessary.

2. Maintenance and Repairs 

• Regular maintenance and necessary repairs to keep your vehicle in working condition for business use are deductible. This includes services like oil changes, tire replacements, and engine repairs.

3. Depreciation 

• Vehicles depreciate over time, and you can claim a portion of this depreciation as a tax deduction. The ATO provides guidelines on how to calculate depreciation for your vehicle.

4. Loan Interest and Lease Payments 

• If you’ve taken a loan to purchase your vehicle or are leasing it, the interest on the loan and lease payments can be partially claimed, proportional to the business use of the vehicle.

5. Insurance 

• Vehicle insurance premiums are also deductible, provided the vehicle is used for business purposes.

6. Registration and Licenses 

• The cost of registering your vehicle and any necessary business licenses related to vehicle use can be claimed. 
  

Methods to Calculate Vehicle Deductions 

Here are the primary methods available: 

1. Cents per Kilometre Method 

• This method allows you to claim a set amount for each kilometre travelled for business purposes, up to 5,000 kilometres per year. 

• As of the 2025 tax year, the rate is 88c cents per kilometre. 

• This method is straightforward, but it has a cap on the maximum claimable amount. 

2. Logbook Method 

• The logbook method requires detailed record-keeping but can allow for greater deductions.  

• You calculate the total vehicle expenses and multiply them by the percentage of business use based on your logbook records. 

• Record Requirements: 

• Record 12 continuous weeks during the income year to establish your business use percentage. 

• Record the car’s odometer readings at the start and end of the logbook period and at the start and end of each subsequent income year your logbook is valid for. 

• For each journey, note the reason, start and end dates, odometer readings, and kilometres travelled. 

3. Actual Costs Method 

• The actual cost method involves claiming expenses based on actual receipts and invoices. 

• You can only claim the percentage of the actual costs that relate to business use. This requires detailed records to separate business use from private use. 

• This method is mandatory for vehicles other than cars and for companies or trusts. Sole traders and partnerships can use any of the methods for cars but must use the actual costs method for other vehicles.

   

Quick Tip: Tax laws and regulations can change, so it’s always a good idea to consult with a qualified tax professional when calculating tax deductions related to your vehicles. 

Common Mistakes to Avoid 

Incomplete Records  
Failing to maintain accurate records can lead to rejected claims or even penalties. Make sure you keep a detailed logbook that records the date, destination, purpose, and mileage for each business trip.  

What you can do: 

• Use a digital logbook app to track mileage and expenses in real time. 

• Schedule regular updates to your records, perhaps weekly or monthly, to avoid backlogs. 

• Store all receipts in a designated folder, both physical and digital, for easy access during tax time. 

Overestimating Business Use  

Overestimating the percentage of your vehicle’s use for business purposes can attract unwanted attention from the ATO and result in audits. Be honest and precise. Calculate the actual percentage of business use based on your logbook entries and apply this accurately to your expense claims. 

What you can do: 

• Calculate the business use percentage by dividing the total business mileage by the total mileage for the year. 

• Regularly review and adjust your estimates to reflect actual use, especially if your business activities fluctuate seasonally. 

• Consult with a tax professional to verify your calculations and ensure they meet ATO standards. 
  

Ignoring Small Expenses  

Minor expenses such as parking fees and tolls are often overlooked, yet they can accumulate over time and contribute significantly to your overall deductions. These small amounts are just as valid as larger expenses and should be meticulously recorded and claimed. 

What you can do: 

• Keep a dedicated envelope or digital folder for parking and toll receipts. 

• Use expense-tracking software to log these small costs as they occur. 

• Review your expenses periodically to ensure all minor costs are accounted for and claimed. 
  
  

Stay Updated on Tax Regulations 

Tax laws and regulations frequently change, impacting what and how you can claim. Staying updated on these changes is crucial to maximising your deductions. Consider consulting with an accountant to ensure you’re always compliant and making the most of your entitled deductions. 

Want to know more about how to maximise your business vehicle deductions? Download our free Guide.