Motor Vehicle Expenses for Business

The work vehicle is often the biggest expense a small business runs — and the deduction most often claimed on instinct rather than records. The rules are not complicated, but they are specific, and the method you choose at the start of the year decides what evidence you need to have by the end of it. Choosing after the fact, with no records, is how good claims turn into small ones.

Two methods for individuals

Sole traders and individuals in partnerships claiming a car generally choose between two methods. The cents per kilometre method applies a set rate per business kilometre — check the current ATO rate — up to a cap of 5,000 business kilometres per vehicle per year. It covers all running costs in one figure, so you cannot add fuel or depreciation on top, and while no logbook is required, you still need a reasonable basis for how you worked out the kilometres. The logbook method claims the business-use percentage of actual costs — fuel, registration, insurance, servicing, depreciation — supported by receipts and odometer records. The percentage comes from a logbook kept for a continuous period of at least 12 weeks that fairly represents your travel; a valid logbook can generally be relied on for several years, but it should be refreshed sooner if your pattern of use changes. High business use rewards the logbook method; modest use often does not justify the effort.

Utes, vans and one-tonne vehicles

Vehicles designed to carry a tonne or more, or not designed principally to carry passengers, are not cars for these rules — so the two methods above do not apply, and expenses are claimed to the extent of actual business use. What the ute does not do is make everything automatic: private use still has to be carved out, and the popular belief that a ute is 100% deductible by nature does not survive contact with a school run.

Vehicles owned by a company or trust

When the vehicle belongs to a company or trust, the entity claims the actual running costs, and the individual methods above do not apply. The trade-off is on the other side of the ledger: a company vehicle available for an employee's or director's private use — including simply being garaged at home — can trigger fringe benefits tax, which deserves a conversation of its own before the vehicle is bought.

What we commonly see go wrong

• Claiming the full 5,000 kilometres every year, on every vehicle, with no basis for the figure — a pattern the ATO has publicly flagged.
• Relying on a logbook that is many years old while the business, and the driving, has changed completely.
• Assuming a ute or van means a 100% claim regardless of the weekend trips.
• Claiming home-to-work travel, which is generally private, even when tools are in the back.

A worked example

As an illustration: an electrician buys a dual-cab ute and claims every dollar it costs to run, on the theory that utes are always fully deductible. The same ute does school drop-offs and tows the boat in summer. In a review, the claim is re-cut to the actual business share, and with no diary or logbook-style evidence, the defensible share is lower than the real one. A simple record of a representative period would likely have supported a higher claim than the ATO's fallback position — the records were worth money, and they were never kept.

When to get help

If you are choosing between the two methods, buying a vehicle through a company, or holding a claim together with an old logbook and optimism, it is worth a review before year end. The method and the evidence are decisions best made at the start of the year, and we can usually tell quickly which approach leaves more in your pocket.

Which is better — cents per kilometre or the logbook method?

It depends on how much genuine business driving you do. Cents per kilometre is simpler but capped at 5,000 business kilometres per vehicle per year, while the logbook method usually gives a larger claim for high business use at the cost of keeping records for a continuous 12-week period plus receipts.

Is my ute automatically 100% deductible?

No. One-tonne utes and vans sit outside the car rules, but the claim is still limited to actual business use — private trips such as commuting alternatives, school runs and holidays must be excluded, and some evidence of the business share is expected.

What if my company owns the car I drive?

The company claims the actual running costs, but a vehicle available for private use — including being garaged at home — can trigger fringe benefits tax. It is worth getting advice on the FBT position before the purchase rather than after.