ATO focus on work-related car expenses
The ATO is warning taxpayers that they are paying close attention to claims for work-related car expenses this tax time.
Assistant Commissioner, Kath Anderson, said “standard” claims were a common error. “Some people think they are entitled to a ‘standard deduction’ for car expenses, using the cents per kilometre method, but this is not the case. While it’s true that you don’t need written evidence for claims of up to 5,000 kilometres per year, you do need to be able to show that you were required to use your car for work, and how you calculated your claim,” she said.
Over 3 million people made a work-related car expense claim in 2015/16, totalling around $8.5b. Ms Anderson said a significant proportion of these claims were right at the limit that does not require detailed records.
“While we have no issue with people using the cents per kilometre method and we expect that most claims at this threshold may be legitimate, we are reminding people that there’s no such thing as a ‘free pass’ when it comes to deductions,” she said.
Car expenses incurred in performing your duties as an employee are generally deductible, but taxpayers usually can’t claim trips between home and work unless they’ve got a good reason, such as carrying bulky tools or equipment to work.
“If you are claiming motor vehicle deductions for work-related travel, you must be able to show that the expenses were incurred by you, were not reimbursed, and relate directly to earning your income.”
Example
A railway guard claimed deductions for car expenses in travelling to and from work, basing his claim on the fact that he carried bulky tools (including his flag, safety vest, handheld radio, torch, instructions and timetables) in his car. He attracted an audit because his deductions were much higher than those of other people in the same occupation. His employer advised us that secure facilities for equipment were available on the business premises, so the transportation of equipment was the employee’s choice. For this reason, expenses relating to travelling to and from work are not an allowable deduction in this situation, and the taxpayer had to pay $2,000 for tax owed plus interest.
If you have any questions regarding your work related car expenses deduction claims , please do not hesitate to contact us.
Martin van der Saag
Director
T: 02 9984 7774
E: martinv@northadvisory.com.au
Norman Ruan
Accountant
T: 02 9984 7774
E: normanr@northadvisory.com.au
“You can claim using either the ‘cents-per-kilometre’ method (up to 5,000 work-kilometres per car) or the ‘logbook method’ — but you need valid records: a logbook, odometer readings, and receipts for actual costs.”
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Key Takeaways
You must meet strict conditions before claiming car expense deductions — expenses must be incurred by you, not reimbursed, and directly related to earning income.
Work-related travel must be genuine (e.g. between workplaces or carrying tools), not regular commuting.
There are two permitted methods for claiming — each with its own record-keeping requirements.
The simpler cents-per-kilometre method suits modest driving, while the logbook method (with detailed records) often produces a more accurate deduction when business usage is high.
Accurate, contemporaneous record-keeping is essential — rely on receipts, odometer logs and a proper logbook (if used).
The ATO requires evidence, and records must be retained for at least 5 years in case of review.
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Frequently Asked Questions
When can I claim work-related car expenses to the Australian Taxation Office (ATO)?
You can claim when the car is used for work purposes (e.g. between workplaces, carrying bulky tools, or travelling between different work sites) — not ordinary commuting between your home and regular workplace. The expense must be incurred by you, not reimbursed, and must directly relate to earning your income.
What types of work-related trips qualify for car expense deductions?
You can claim car expenses only for work-related travel such as driving between separate work locations, transporting equipment essential for your job, or attending off-site meetings. Ordinary travel between home and your usual workplace is generally considered private and not deductible.
What records do I need if I claim motor vehicle expenses?
You need to keep: receipts for fuel, maintenance, registration, insurance and other running costs; odometer readings; a logbook (if using that method); and a record of work-related trips (date, purpose, kilometres) — plus taxi/parking/toll receipts if applicable. Records must be kept for at least 5 years.
Can I claim the full cost of the car if I also use it privately?
No. You must apportion the claim — only the portion of use and costs that relate to work can be claimed. Private use, such as commuting between home and workplace (except in limited circumstances), or personal trips, is not deductible.
What types of car-related expenses are typically deductible?
Deductible expenses may include fuel, oil, maintenance and repairs, insurance, registration, depreciation (decline in value), and other running costs — but only to the extent used for work-related travel.
What are the ATO’s safe harbour guidelines for these payments?
The ATO has drafted safe harbour rules that allow payments to be apportioned when a sportsperson is paid partly for playing and partly for their public fame/image.
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