Motor vehicle tax deductions are one of the most misunderstood areas of Australian tax. Business owners regularly overclaim, underclaim, or make assumptions based on myths rather than actual ATO rules. This post works through the 10 questions we hear most often, with straight answers based on current ATO rules for 2025–26. If you want a detailed guide on how to claim vehicle expenses, see our article on claiming motor vehicle expenses for tax.

For the current figure, see our dedicated guide to the ATO cents per km rate for 2026-27 and how much you can claim.

The figures in this article reflect the 2025–26 income year: cents per kilometre rate of 88 cents, car limit of $69,674, instant asset write-off threshold of $20,000 for businesses with annual turnover under $10 million, and a maximum GST credit of $6,334 on passenger vehicles. Source: ATO — Car expenses.

These answers address common scenarios but are general in nature. If you are unsure which method or structure applies to you, book a no-obligation consultation with our team.

Q1: If my car has business signage, can I claim 100% of expenses?

No — and this is one of the most persistent myths in small business tax.

Business signage on a vehicle does not change how the ATO assesses your claim. You can only deduct the proportion of vehicle expenses that corresponds to actual business use. If you drive a signwritten ute 70% for business and 30% for private purposes, you can claim 70% of expenses — full stop.

The confusion comes from the assumption that making a vehicle look like a work vehicle somehow makes it one for tax purposes. It does not. What matters is how the vehicle is actually used, documented through a logbook or supported by records under the cents per kilometre method. The only situation where 100% deductions are available is where private use is genuinely nil — which is rare for business owners who drive their work vehicle home each day.

Q2: Can I claim car expenses to commute to and from my regular office?

No. Home-to-work travel is private travel under ATO rules.

The ATO’s position has been consistent for decades: ordinary commuting is not deductible. The reasoning is that the choice to live at a distance from your workplace is a private decision.

There are three exceptions worth knowing:

• Travel between workplaces: If you travel directly from one workplace to another in the same day, that travel is deductible.
• Bulky equipment: If your work requires you to transport bulky tools or equipment that cannot be stored at work, and there is genuinely no secure storage available at your workplace, home-to-work travel may be deductible.
• Home as principal place of business: If your home is your genuine principal place of business — you have a dedicated home office and conduct the majority of your income-earning activities there — travel from home to see clients or visit other locations may be deductible. This does not apply simply because you occasionally work from home.

Q3: What is the best method — logbook or cents per kilometre?

It depends on your kilometres and vehicle costs. Here is how to think about it.

There are two methods available for individuals claiming car expenses:

• Cents per kilometre: 88 cents per km for 2025–26, capped at 5,000 km. Maximum claim: $4,400. No logbook required — you need to be able to explain how you calculated your business kilometres.
• Logbook method: You claim the actual business-use percentage of all vehicle running costs, including fuel, insurance, registration, servicing, and depreciation. Requires a logbook covering at least 12 continuous weeks. Once prepared, the logbook is valid for five years if your usage pattern is consistent.

The logbook method wins when you drive more than 5,000 business kilometres per year (since the cents per km method is capped), your vehicle has high running costs, or your business use percentage is above 70–80%. The cents per km method is better when you drive fewer kilometres for business or want a straightforward approach with minimal recordkeeping. Note: companies and trusts cannot use the cents per kilometre method — they must use actual costs.

Q4: I bought a work vehicle for $85,000. Can I deduct the full purchase price?

Not if it is a passenger vehicle — the car limit caps your deduction.

For 2025–26, the car limit is $69,674. This is the maximum cost base that can be used for depreciation on a passenger vehicle, regardless of what you actually paid. If you paid $85,000 for a luxury SUV, your depreciation and GST credits are calculated as if the vehicle cost $69,674.

The instant asset write-off ($20,000 for businesses with turnover under $10 million) does not override the car limit for passenger vehicles. If you claim instant asset write-off on an $85,000 car, the maximum write-off in year one is $69,674, adjusted further for any private use percentage.

The car limit does not apply to vehicles that are not “cars” under the tax rules — for example, motorcycles, or commercial vehicles designed to carry more than one tonne (like a ute with a payload over 1,000 kg). This is one reason work utes are popular among tradies — they may fall outside the car limit entirely. Source: ATO — Car limit.

Q5: Can I claim car expenses through my company or trust?

Yes, but fringe benefits tax (FBT) is likely to apply — and this changes the maths significantly.

When a company or trust owns a vehicle and an employee, director, or associate uses it for private purposes, a car fringe benefit arises. The entity can claim a full deduction for vehicle running costs, but must report and pay FBT on the value of the private benefit provided.

The FBT rate is 47%, applied to the taxable value of the car fringe benefit under either the statutory formula method or operating cost method. Keeping a logbook can significantly reduce the taxable value under the operating cost method. Some vehicles used wholly for business — never garaged at home, with no private use — may be exempt from FBT altogether, but this requires strict records and the ATO scrutinises these claims carefully.

---

Q6: Do I need to keep a logbook every year?

No — but your logbook must remain representative of your actual use.

A logbook is valid for five income years from the year it was prepared, provided your travel pattern has not changed significantly. You must still record your vehicle’s odometer reading at the start and end of each income year throughout that period.

You need a new logbook if: you change vehicles; your business activities change materially; or your private use increases significantly. If you are audited and your logbook period is unrepresentative of how you actually use the vehicle, the ATO may disallow part or all of your claim.

Q7: My spouse and I share a vehicle for business — how do we claim?

Each person can claim their own business use, provided the claims do not overlap or double-count. If the vehicle is registered to one of them but paid for by the other, see can you claim motor vehicle expenses if the registration is not in your name.

If you and your spouse both use the same vehicle for separate business activities, each of you can claim the proportion of expenses that relates to your own business use. The combined business use percentage cannot exceed 100% of the vehicle’s total use.

For example: you use the car 50% for your business and your spouse uses it 25% for theirs. The remaining 25% is private. You can each claim 50% and 25% of vehicle expenses respectively, on your separate tax returns. Both parties should keep separate logbook entries or kilometre records clearly identifying their trips.

Q8: Can I claim car expenses if I receive a car allowance from my employer?

Yes — but the allowance is taxable income, and your deduction is for actual expenses.

A car allowance paid by your employer must be included in your assessable income. It is not a tax-free reimbursement. You then claim your actual work-related car expenses as a deduction using the cents per kilometre method or logbook method.

If your deductible car expenses exceed the allowance you received, you have a net deduction. If your expenses are less than the allowance, you have a net taxable amount. Employees who receive a car allowance sometimes assume no further action is needed at tax time — this is incorrect. Track your business kilometres throughout the year.

Q9: What GST credit can I claim on a business vehicle purchase?

Up to $6,334 on a passenger vehicle — capped by the car limit, then adjusted for business use.

If you are GST-registered and purchase a vehicle for business use, you can claim an input tax credit of 1/11th of the purchase price. For passenger vehicles, this is capped at 1/11th of the car limit: $6,334 for 2025–26.

If the vehicle is used for a mix of business and private purposes, the GST credit is further reduced proportionally. For example: vehicle purchased for $85,000 (GST-inclusive); car limit applies capping the credit at $6,334; business use is 70%; actual GST credit claimable: $6,334 x 70% = $4,434. Source: ATO — Cars and GST.

Q10: Can I claim private trips that happen to coincide with a business trip?

No — only the business component is deductible, and mixed-purpose travel must be apportioned.

Where a trip has both business and private purposes, only the business component is deductible. The fact that a trip started or ended at a business meeting does not make the entire journey deductible.

For example: you drive from home to a client meeting (30 km each way) and on the way back divert to pick up groceries (5 km additional). The 60 km round trip to the client is potentially deductible. The 10 km grocery diversion is not. This is why a logbook requires you to record start and end points and the business purpose of each trip — vague entries are a red flag in ATO audits. It is also one of the claims highlighted in the current ATO crackdown on personal versus business deductions. Mixed-purpose travel is one of the most common areas of adjustment when the ATO audits sole traders and small businesses.

---

Getting Your Vehicle Claims Right

For a complete view of how vehicle claims fit into your tax position, see our tax planning services. Motor vehicle deductions are legitimate and valuable — but only when they reflect genuine business use and are supported by proper records. The two most common mistakes are overclaiming (treating private use as business) and underclaiming (not knowing which method gives the best result). Our detailed guide on motor vehicle tax deductions covers both methods with worked examples. If you want to review your vehicle claims with a registered tax agent before your next return, get in touch.

One question this guide does not cover is what happens when you sell. If your vehicle cost more than the car limit, read selling a car above the car limit before you sign a contract, because the GST and income tax outcomes surprise most owners.

Frequently Asked Questions

This article contains general advice only and does not take into account your specific circumstances. Please speak with a qualified accountant or tax adviser before making financial decisions.

For vehicle and other business claims done right, work with a proactive tax accountant in Melbourne who reviews your whole position.

• Facebook
• Instagram
• LinkedIn
• YouTube
• TikTok
• X