How To Claim Your Car as a Tax Deduction

If use your vehicle for work or business purposes, it’s essential to understand how you can claim motor vehicle expenses on your tax return. Whether you're a sole trader, contractor, or business owner, or employee there are methods available that allow you to reduce your tax income through vehicle expenses. Let's  dive into the two main methods of claiming motor vehicle expenses – and  explore the best ways to finance your vehicle and claim GST tax credits, so you get the best outcome. 

1. Cents Per Kilometre Method

The Cents per Kilometre Method is one of the simplest and most straightforward ways to claim motor vehicle expenses on your tax return in Australia. It allows you to claim a set rate per kilometre driven for work-related purposes.

How Does It Work?

• You don’t need a logbook to use this method, which makes it ideal if you don’t keep detailed records.
• You can claim a maximum of 5,000 km for each car in a financial year.
• The rate you can claim is determined by the Australian Taxation Office (ATO) each year, and for 2025, the rate is 78 cents per kilometre (this is an example rate – always check the ATO website for the most current rate).

Example:

If you drove 2,000 km for work purposes during the year, you could claim:

• 2,000 km x $0.78 = $1,560.

The benefit of this method is that it’s quick, but the trade-off is that it doesn’t account for the actual expenses incurred, such as fuel, insurance, or depreciation. The cents per kilometre method is designed for those who want a simpler way of calculating their vehicle-related claims without needing to keep detailed records.

2. Logbook Method

The Logbook Method (also called the Actual Usage Method) requires a bit more work but can offer a more accurate reflection of your vehicle expenses, especially if you drive a lot for work purposes.  Note: If you are an employee read about how a salary packaging works for motor vehicle using Novated leasing here.

How Does It Work?

This method requires you to keep a logbook for a 12-week period that represents a typical year of driving. The logbook must record:

• The date of each trip.
• The starting and ending odometer readings.
• The purpose of the trip.
• The distance travelled for each trip.

From this logbook, you’ll determine the percentage of work-related use for your vehicle. For example, if you drive 15,000 km in total for the year and 9,000 km were for work, you could claim 60% of your car expenses.

What Expenses Can You Claim?

Once you've calculated your work-related usage percentage, you can apply it to the following costs:

• Fuel and oil
• Repairs and maintenance
• Registration
• Insurance
• Depreciation (or lease payments)
• Interest on a loan (if you financed the vehicle)

Example:

Let’s say your vehicle costs $10,000 for fuel, repairs, and insurance for the year, and you use the car 60% for work purposes. You can claim 60% of that total, which equals $6,000.

Key Points to Remember:

• You need to keep a detailed logbook for at least 12 weeks to establish a pattern of travel.
• This method is ideal if you use your vehicle for a significant amount of work-related travel, as it allows you to claim a broader range of expenses than the Cents per Kilometre Method.
• Remember that if you own your own business and have a home office, then travel from home office to work is deductible if you are carrying tools or equipment. 

3. Best Ways to Finance Your Vehicle

When buying a vehicle for work or business, you may need to consider the best way to finance the purchase. The two most common options for financing a vehicle in Australia are Chattel Mortgage and Car Lease. Here, we’ll focus on the Chattel Mortgage, a popular choice for many small businesses and one that we recommend. 

Chattel Mortgage

A Chattel Mortgage is a type of finance agreement where you borrow money to purchase a vehicle (or other tangible assets), and the vehicle itself serves as security for the loan. This means that while you are paying off the loan, you own the vehicle outright and can claim tax deductions for both the depreciation and interest payments.

How Does a Chattel Mortgage Work?

• Loan structure: You receive a loan for the full amount of the vehicle, and you make regular repayments (usually monthly).
• Ownership: You are the owner of the vehicle from day one.
• GST: One of the main advantages of a Chattel Mortgage is that you can claim back the GST on the purchase price of the vehicle (provided you’re registered for GST).

Depreciation:

The vehicle you purchase under a Chattel Mortgage is depreciated over time, with the maximum depreciation limit for 2025 set at $69,764. This means you can depreciate the vehicle up to this value each year.  

If your car loan is for a vehicle that exceeds the Cost depreciation limit , you still can claim the interest on the loan for business use, but the depreciation is limited to the threshold.

For example, if you purchase a car for $60,000 under a Chattel Mortgage, you can claim the GST on the purchase price and start depreciating the vehicle according to the Depreciation Schedule. For businesses, the vehicle will typically be depreciated using the Prime Cost or Diminishing Value methods, depending on your preference.

4. Claiming GST Tax Credits on Vehicle Purchase

If you purchase a vehicle through a Chattel Mortgage, you can claim the GST included in the price of the vehicle as a tax credit, provided your business is registered for GST. This is a significant advantage for business owners and sole traders, as it can reduce the upfront cost of the vehicle.

For 2025, businesses can claim the GST back on the purchase price of the vehicle, up to the depreciation limit of  $69,764.

Example:

If you purchase a vehicle for $60,000 (excluding GST), you can claim the $6,000 GST (10% of the purchase price) back, as long as you're registered for GST.

Key Things to Remember:

• You must be registered for GST to claim the GST tax credits.
• The maximum depreciation limit for 2025 is $69,764 (excluding GST), so any vehicle purchased over this amount will need to be depreciated at a reduced rate.

Conclusion

Whether you’re using the Cents per Kilometre Method for simplicity or the Logbook Method for a more accurate claim, there are several ways to claim motor vehicle expenses on your tax return in Australia. Additionally, purchasing a vehicle through a Chattel Mortgage can provide tax benefits, such as claiming GST tax credits and depreciating the vehicle. Always consult with a tax professional to ensure you are making the most of your tax deductions and adhering to the ATO’s requirements.

When financing a vehicle, consider your business's cash flow, vehicle usage, and tax implications to decide which method works best for you. Proper record-keeping, particularly with a logbook, can maximize your claims and ensure your tax return reflects your actual vehicle expenses.

By staying informed and organized, you can make the most of these vehicle-related tax benefits in 2025 and beyond.

Chris Tolevsky has over 30 years experience in the medical and allied health fields.  He provides expert guidance on tax strategies, building and protecting wealth . If you’re interested in discussing how we can help you please book a complimentary consultation. 

Disclaimer: This article contains general information only . It is not designed to be a substitute for professional advice and does not take into account your individual circumstances, so please check with us before implementing this strategy to make sure it is suitable