Deductions
Cents per kilometre method
The cents per kilometre method claims car expenses using a set rate per business kilometre, up to a maximum number of kilometres, without needing receipts for the actual costs.
The cents per kilometre method is a simplified way to claim a deduction for using your own car for work or business. You multiply the number of business kilometres you travelled by a rate per kilometre set by the ATO. The rate is intended to cover all the running costs of the car, including fuel, servicing, insurance, registration and the decline in value, so you do not claim those costs separately.
There is a cap on the number of business kilometres you can claim under this method for each car in an income year. The rate and the cap are set by the ATO and can change, so check ato.gov.au for the current figures. If your business kilometres exceed the cap, the method will not capture all your travel, and you may find the logbook method gives a better result.
The attraction is simplicity. You do not need to keep receipts for the individual expenses, and you do not need a logbook. However, you still must be able to show how you worked out your business kilometres, for example by keeping a diary, a calendar of client visits, or a record of odometer readings and trip purposes. A bare estimate with nothing to support it is risky.
Which car this method can be used for is also restricted. It generally applies to cars owned or leased by individuals, including sole traders and partnerships made up of individuals, but not to companies or trusts claiming in their own right. It is designed for cars, which means vehicles carrying fewer than nine passengers and with a carrying capacity under one tonne.
From a GST point of view, claiming income tax deductions using a set rate does not remove the need to treat GST correctly. A business registered for GST should be careful about claiming credits on car costs, because the rate is not based on actual invoices. If you are registered, speak to a tax professional about how credits interact with your chosen method, and remember that credits on the purchase of a car are subject to the car limit.
People often assume they can claim the cents per kilometre rate on top of fuel receipts or registration costs. You cannot, because the rate already covers them. Another error is claiming kilometres that were really private, including normal commuting. This content is general information only, so confirm what applies to you with the ATO or a registered tax professional.
Worked example
Ben is a sole trader who drove 3,200 business kilometres in his own car, with a diary of client visits to support it. Assume the ATO rate is $0.88 per kilometre, purely for illustration. His deduction is 3,200 x $0.88 = $2,816. He does not also claim fuel or insurance. He keeps his diary showing dates, destinations and purposes.
Practical tips
- Keep a diary or calendar of business trips. You do not need receipts, but you must be able to show how you worked out the kilometres.
- Do not claim fuel, registration or servicing on top of the rate, because they are already included.
- If you drive a lot for business or have high running costs, compare with the logbook method, as the cap on kilometres may limit this method.