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Motor Vehicle Expense Tax Deductions for Small Businesses

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Small business owners can claim tax deductions for certain vehicle expenses. The rules vary depending on the type of business you own, the kind of vehicle you use, and the method you use to claim your deduction. If you’re overwhelmed by all the complicated rules and terminology regarding motor vehicle tax deductions, we’re here to help. In this guide, we’ll cover everything you need to know about tax deductions for motor vehicle expenses.

Types of Motor Vehicles

First, it’s important to know which vehicles qualify for a deduction. You can claim a deduction for both cars and other vehicles. The ATO uses these two types of motor vehicles for tax purposes.

Cars are considered motor vehicles if they meet two criteria:

  1. They are designed to carry less than one tonne of weight.
  2. They are designed to carry fewer than nine passengers.

Other vehicles include the following:

  • Motorcycles
  • Vehicles designed to carry one tonne or more, including trucks or large vans.
  • Vehicles designed to carry nine passengers or more, including minivans or buses.

You must own, lease, or have a hire-purchase agreement for each motor vehicle you use for tax-deductible purposes.

If your business is a company or trust, you may deduct expenses for motor vehicles you provide to employees.

A List of Expenses You Can Claim

You can claim most vehicle expenses. Specifically, per the ATO, you can claim:

  • Fuel
  • Oil
  • Repairs and maintenance
  • Interest on the loan for your vehicle
  • Lease payments for your vehicle
  • Automobile insurance premiums
  • Registration fees
  • Vehicle depreciation
Which method should you use to claim motor vehicle expenses?

You can use several methods to track and claim motor vehicle expenses. Some business structures are only allowed to use specific methods. The ATO requires accurate and thorough records [note to nexZen: you can link to the record-keeping article here].

Cents Per Kilometre

Cents per kilometre is a simple method that doesn’t require written evidence.

Who can use the cents per kilometre method?
  • Sole traders
  • Partnerships (with at least one partner who is an individual)

This method is only allowable for motor vehicles that fall under the ATO’s definition of a car (outlined above).

The Benefits of the Cents Per Kilometre Method
  1. The CPK method is simple and uses a set rate.
  2. You may claim up to 5,000 kilometres per car each year.
  3. You don’t need written evidence to support your claim. (You may, however, need to explain how you calculated your business kilometres.)
  4. The effective rates are designed to cover most standard vehicle expenses such as fuel, maintenance, registration, and insurance.
Cents Per Kilometre Rates by Year

CPK rates are updated each year to keep up with inflation and current vehicle costs. For 2020-21 and 2021-22, the rate is 72 cents per km.

How to calculate cents per kilometre:

Multiply your total kilometres travelled for business purposes by the effective rate. The resulting number is the amount you may claim on your income taxes.

Logbook Method

The logbook method is much more complicated than the cents per kilometre method. However, if your vehicle expenses are higher than average, this method may provide greater tax savings.

Who can use the logbook method?
  • Sole traders
  • Partnerships

This method is only allowable for motor vehicles that fall under the ATO’s definition of a car (outlined above).

The Benefits of the Logbook Method
  1. The logbook method helps you keep track of your vehicle expenses throughout the year with thorough records to back up your claims.
  2. This method may provide greater tax savings if your vehicle expenses are higher than average.
How to Calculate Your Tax Deduction Using the Logbook Method:
  1. To use the logbook method, start a log of the kilometres you travel for business and personal purposes. Also, keep records of all of your car expenses for the tax year.
  2. Divide the total kilometres you travelled for business by the total kilometres you travelled overall.
  3. Multiply the result by 100.
  4. Total your car expenses for the tax year.
  5. Multiply the result from Step 4 (your total car expenses) by the result from Step 3 (your business-use percentage). The final result is the amount you can claim for income tax purposes.
Which records are required for the logbook method?
  • You’ll need to keep a logbook. You can purchase a pre-printed logbook or use a digital version. Many app stores have logbook apps that are easy to use and functional.
  • You’ll also need evidence to support your fuel and oil costs. These may be odometer readings you use as estimates.
  • Finally, you’ll need documentation that supports your other expense claims, including receipts for car-related purchases, such as maintenance, registration, etc.
What should you record in your logbook?

Most pre-printed logbooks and logbook apps will have all the necessary fields for record-keeping purposes. The ATO requires you to keep track of:

  • The dates your logbook period starts and ends.
  • Your odometer readings at the beginning and end of your logbook period.
  • The total number of kilometres you travelled in the car during this period.
  • A record of each trip and the number of kilometres you travelled. You only need to record one total journey for each day, however. If you make two or more trips in one day, record them as one logbook entry. Also include the reason for the journey, the trip start and end dates, and odometer readings.
  • The car’s business-use percentage for each logbook period.
  • If you use your logbook for more than one income year, record the odometer readings for the start and end of each year.
  • Car information, including the make, model, engine capacity, and registration number.
Other Logbook Requirements

If you’ve never kept a logbook before, you must continuously track your trips for at least 12 weeks in the first income year. If the income year ends before you’ve tracked at least 12 weeks in your logbook, you may continue using the logbook into the next income year until you’ve recorded at least 12 continuous weeks.

Your logbook is valid for five years. You may start a new logbook whenever you like.

If you use one logbook for multiple cars, you must cover the same 12-week period for each car.

The Logbook Method and Depreciation

Using the logbook method, you can claim motor vehicle depreciation. Use your business-use percentage to calculate your depreciation; only the business portion of your car’s cost is depreciable for tax purposes.

Actual Costs Method

The actual costs method is more straightforward than the logbook method but more complicated than the cents per kilometre method. However, most business structures can use this method, providing substantial tax savings.

Who can use the actual costs method?

  • Companies
  • Trusts
  • Sole traders
  • Partnerships

Note that companies and trusts may use the actual costs method for any qualified motor vehicle. Sole traders and partnerships may only use this method for motor vehicles defined as “other vehicles” by the ATO.

The Benefits of the Actual Costs Method
  • The actual costs method provides accurate tracking of vehicle expenses.
  • This method often provides the greatest tax savings for businesses with substantial vehicle-related expenses.
How to Calculate Actual Costs

The actual costs method is very straightforward: Keep all of your business-related vehicle receipts and add the amounts to find your actual costs for the year.

Remember, if you use the vehicle for both business and personal purposes, you must calculate how much of the distance travelled is for business use and how much is for personal use. You may only claim the business-use percentage of your vehicle expenses. You must also keep records supporting your claim.

The Actual Costs Method and Depreciation

You may claim depreciation on your vehicle if you use the actual costs method. Use your business-use percentage to calculate your depreciation; only the business portion of your car’s cost is depreciable for tax purposes.

nexZen Helps Clarify Vehicle Expense Tracking

Vehicle expense tracking for tax purposes is never easy, but there are certainly ways to simplify things. While you have several options, many business owners use the simplest tracking method that provides the greatest tax deduction. Sole traders who rarely travel may benefit most from the cents per kilometre method. Large companies with a fleet of vehicles may benefit most from (and be required to use) the actual costs method. Please let us know if you need help setting up an accurate tracking system or figuring out which method to use. You can book a discovery call with nexZen to discuss your options and figure out the best method for your business.

We look forward to hearing from you.

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This is a loser that most people are probably pretty happy about — the government is extending a task force that targets tax avoidance by multinationals, large public and private groups, trusts and wealthy individuals.

It is giving the Australian Tax Office (ATO) more than $600 million over the next three years to keep the scrutiny on those groups.

The budget forecasts the extension of the task force will make the government $2.1 billion in revenue from tax over the next four years.

In bad news for people’s pay packets, real wages are not forecast to grow until later this year at the earliest thanks to higher-than-expected inflation.

At the end of last year, Treasury predicted the inflation rate would be 2.75 per cent. The reality has ended up being around 4.25 per cent.

The budget is predicting wages will only be just higher than inflation in the next couple of years, meaning cost of living pressures are unlikely to ease any time soon.

Despite current price hikes, the budget is forecasting inflation will taper off and wages will grow faster by the middle of the decade.

Buried under the wildly exciting headline of Commonwealth’s Deregulation Agenda, is the $19.9 million spend by the Australian Bureau of Statistics to develop a new reporting application to enable businesses to submit surveys on business indicators directly through their accounting software. Excellent. Real time reporting utilising verified data on the state of Australian business. Guarantee of Origin scheme, and the development of a Biodiversity Stewardship Trading Platform to support farmers to undertake biodiversity activities ahead of the introduction of a voluntary biodiversity stewardship market.

Another $148.6m is for the development of community microgrids and just over $50m to develop gas infrastructure projects.

An additional $652.6m has been set aside to extend the ATO’s Tax Avoidance Taskforce by 2 years to 30 June 2025.
In that time, the taskforce is expected to increase receipts by $2.1bn and increase payments by $652.6m.

Just prior to the Federal Budget, the Government announced the extension of the:

  • Boosting Apprenticeship Commencements wage subsidy, and
  • Completing Apprenticeship Commencement wage subsidy.

    Any employer (or Group Training Organisation) who takes on an apprentice or trainee up until 30 June 2022 can gain access to:
  • 50% of the eligible Australian Apprentice’s wages in the first year, capped at a maximum payment value of $7,000 per quarter per Australian Apprentice,
  • 10% of the eligible Australian Apprentice’s wages in the second year, capped at a maximum payment value of $1,500 per quarter per Australian Apprentice, and
  • 5% of the eligible Australian Apprentice’s wages in the third year, capped at a maximum payment value of $750 per quarter per Australian Apprentice.

From

7:30pm AEDT, 29 March 2022 until 30 June 2024

The Government intends to provide a 120% tax deduction for expenditure incurred by small businesses on external training courses provided to employees. The deduction will be available to small business with an aggregated annual turnover of less than $50 million. External training courses will need to be provided to employees in Australia or online, and delivered by entities registered in Australia.
Some exclusions will apply, such as for in-house or on-the-job training and expenditure on external training courses for persons other than employees.
We assume there will need to be a nexus between the employee’s employment and the training program undertaken for the boost, although we are waiting on further details of this initiative to be released. 
The boost for eligible expenditure incurred by 30 June 2022 will be claimed in the tax return for the following income year (that is, the 2023 tax return). The boost for eligible expenditure incurred between 1 July 2022 and 30 June 2024, will be included in the income year in which the expenditure is incurred.

From

1 July 2021

As previously announced, work‑related COVID‑19 test expenses incurred by individuals will be made tax deductible. 
Changes will also be made to ensure that FBT will not be payable by employers if they provide fringe benefits relating to COVID‑19 testing to their employees for work‑related purposes.
The changes for deductions will be effective from 1 July 2021, with the FBT changes to apply from 1 April 2021.
At this stage it is not entirely clear whether the deduction rules will cover expenses incurred where the employee is able to work from home. The initial media release indicates that the measure will cover situations where the individual has the option of working remotely, while the Budget only refers to costs of taking a COVID-19 test to attend a place of work but doesn’t specifically refer to employees who can work from home.

From

1 July 2022
Back in the 2019-20 Budget, the Government announced that Australian Business Number (ABN) holders would be stripped of their ABNs if they failed to lodge their income tax return. In addition, ABN holders would be required to annually confirm the accuracy of their details on the Australian Business Register.


This measure has been deferred for 12 months, which means that the tax return lodgement obligation is due to commence from 1 July 2022 with the annual confirmation of ABN details to commence from 1 July 2023.

As announced prior to the Budget, the Government will commit $6.6 million for the development of IT infrastructure that will enable the ATO to share Single Touch Payroll (STP) data with State and Territory Revenue Offices on an ongoing basis. 

The funding will be deployed following further consideration of which states and territories are able and willing to make investments in their own systems and administrative processes to pre-fill payroll tax returns with STP data in order to reduce compliance costs for businesses.

The measure that enables payments from certain state and territory COVID-19 business support programs to be treated as non-assessable non-exempt (NANE) income has already been extended until 30 June 2022. 
The Government has announced that the following state and territory grant programs have been made eligible for this treatment since the 2021-22 MYEFO, although it is not clear whether the relevant legislative instruments have been issued as yet:

  • New South Wales Accommodation Support Grant 
  • New South Wales Commercial Landlord Hardship Grant 
  • New South Wales Performing Arts Relaunch Package 
  • New South Wales Festival Relaunch Package 
  • New South Wales 2022 Small Business Support Program 
  • Queensland 2021 COVID 19 Business Support Grant 
  • South Australia COVID 19 Tourism and Hospitality Support Grant 
  • South Australia COVID 19 Business Hardship Grant.

    This builds on the list of existing grants paid by New South Wales and Victoria that can already qualify for NANE income treatment. 

From

1 January 2024

As announced prior to the Budget, businesses will be able to report Taxable Payments Reporting System data via their accounting software on the same lodgment cycle as their activity statements.
The measure is expected to reduce the costs of complying with the system and increase transparency.

From

1 January 2024

As announced prior to the Budget, companies will be able to choose to have their pay as you go (PAYG) instalments calculated using current financial performance, extracted from business accounting software, with some tax adjustments. 
The move is intended to ensure that instalment liabilities are aligned to the businesses cashflow. In addition, the digitisation of PAYG instalments will improve transparency and provide more accurate data on performance. 

From

2022-23 income year

Normally, GST and PAYG instalment amounts are adjusted using a GDP adjustment or uplift. For the 2022-23 income year, the Government is setting this uplift factor at 2% instead of the 10% that would have applied. 

The 2% uplift rate will apply to small to medium enterprises eligible to use the relevant instalment methods for instalments for the 2022-23 income year and are due after the amending legislation comes into effect:

  • Up to $10 million annual aggregated turnover for GST instalments and 
  • $50 million annual aggregated turnover for PAYG instalments 
From 7:30pm AEDT, 29 March 2022 until 30 June 2023
The Government intends to provide a 120% tax deduction for expenditure incurred by small businesses on business expenses and depreciating assets that support their digital adoption, such as portable payment devices, cyber security systems or subscriptions to cloud based services. The technology boost will be available to small business with an aggregated annual turnover of less than $50 million.An annual expenditure cap of $100,000 will apply to the boost. The boost for eligible expenditure incurred by 30 June 2022 will be claimed in tax returns for the following income year. The boost for eligible expenditure incurred between 1 July 2022 and 30 June 2023 will be included in the income year in which the expenditure is incurred. That is, the additional deduction available under this measure is expected to be claimed in the 2023 tax return.  

The temporary 50% reduction in superannuation minimum drawdown requirements for account-based pensions and similar products has been extended to 30 June 2023. 


Minimum superannuation drawdown rates 2019-2023

Age 

Default minimum drawdown rates (%) 

Reduced rates by 50% for the 2019-20 to 2022-23 income years (%) 

Under 65 

4 

2 

65-74 

5 

2.5 

75-79 

6 

3 

80-84 

7 

3.5 

85-89 

9 

4.5 

90-94 

11 

5.5 

95 or more 

14 

7 

 

From

1 July 2024

Trust and beneficiary income reporting and processing will be digitalised with all trusts being provided with the option of lodging income tax returns electronically.

While this measure will reduce compliance costs, it will also increase transparency and provide the ATO with a greater insight into where anomalies are occurring.

From

1 July 2021

The Medicare levy low income thresholds for seniors and pensioners, families and singles will increase from 1 July 2021.

 

2020-21 

2021-22 

Singles 

$23,226 

$23,365

Family threshold 

$39,167 

$39,402

Single seniors and pensioners 

$36,705 

$36,925

Family threshold for seniors and pensioners 

$51,094 

$51,401

 
For each dependent child or student, the family income thresholds increase by a further $3,619 instead of the previous amount of $3,597. 

The Home Guarantee Scheme guarantees part of an eligible buyer’s home loan, enabling people to buy a home with a smaller deposit and without the need for lenders mortgage insurance. The Government has extended two existing guarantees and introduced a new regional scheme.

Just prior to the Budget, the Government announced:

  • First Home Guarantee – from 1 July 2022, an increase from 10,000 to 35,000 guarantees to support eligible first homebuyers to purchase a new or existing home. 
  • Single parent Family Home Guarantee – 5,000 guarantees each year from 1 July 2022 to 30 June 2025. The family home guarantee supports eligible single parents with children to buy their first home or to re-enter the housing market with a deposit of as little as 2%.
  • Introduction of a Regional Home Guarantee. This guarantee will support eligible citizens and permanent residents who have not owed a home for 5 years (including non-first home buyers) to purchase or construct a new home in regional areas with a minimum 5% deposit areas (subject to the passage of enabling legislation).

From

April 2022

A one-off $250 ‘cost of living payment’ will be provided to Australian resident recipients of the following payments and concession card holders:

  • Age Pension 
  • Disability Support Pension 
  • Parenting Payment 
  • Carer Payment 
  • Carer Allowance (if not in receipt of a primary income support payment) 
  • Jobseeker Payment 
  • Youth Allowance 
  • Austudy and Abstudy Living Allowance 
  • Double Orphan Pension 
  • Special Benefit 
  • Farm Household Allowance 
  • Pensioner Concession Card (PCC) holders 
  • Commonwealth Seniors Health Card holders 
  • Eligible Veterans’ Affairs payment recipients and Veteran Gold card holders.

    The payments are exempt from taxation and will not count as income support for the purposes of any income support payment. An individual can only receive one payment.

From

1 July 2021 to 30 June 2022

The low and middle income tax offset (LMITO) currently provides a reduction in tax of up to $1,080 for individuals with a taxable income of up to $126,000.

The tax offset is triggered when a taxpayer lodges their 2021-22 tax return.

For the 2021-22, the LMITO will be increased by $420 which means that the proposed new rates for individuals are as follows:

 

Taxable income 

Offset 

$37,000 or less 

$675

Between $37,001 and $48,000 

$675 plus 7.5 cents for every dollar above $37,000, up to a maximum of $1,500

Between $48,001 and $90,000 

$1,500

Between $90,001 and $126,000 

$1,500 minus 3 cents for every dollar of the amount above $90,000 

From12.01am 30 March 2022

There are a few jokes going around social media about the price of fuel.

As widely predicted, the Government will temporarily reduce the excise and excise-equivalent customs duty rate that applies to petrol and diesel by 50% for 6 months from Budget night. That is, the current 44.2 cents per litre excise rate will reduce to 22.1 cents per litre from Budget night. However, the measure is subject to the passage of the enabling legislation so don’t expect to see a change right away. 

 The reduction extends to all other fuel and petroleum based products except aviation fuels.

At the conclusion of the 6 months on 28 September 2022, the excise and excise-equivalent customs duty rates revert to previous rates including any indexation that would have applied during the 6 month period. 

The Australian Competition and Consumer Commission (ACCC) will monitor the price behaviour of retailers to ensure that the lower excise rate is passed on to consumers.

The measure comes at a cost of $5.6bn.

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