Understanding vehicle deductions for business use.
For many business owners and sole traders, a car is more than just a way to get from A to B, it’s a vital tool for running and growing your business. But when it comes to claiming vehicle expenses, the big question is: can your car be tax-free?
The short answer? Not quite — but you can claim deductions.
Under Australian tax law, no car is truly “tax-free.” However, if your vehicle is used for business purposes, you may be eligible to claim deductions for running costs or even depreciation, which can significantly reduce your taxable income.
What makes a car eligible?
To claim car expenses, the vehicle must be used in the course of earning your assessable income. This includes:
- Visiting clients or job sites
- Attending business meetings or events
- Travelling between different workplaces (not commuting from home to your regular workplace)
You’ll also need to prove that the use was business-related, meaning you need to document accurate records.
Methods for claiming
There are two main methods to claim car expenses:
- Cents per kilometre method
You can claim up to 5,000 business kilometres per car, per year at a set rate (currently 85 cents/km for the 2024–25 financial year). No logbook is required, but you’ll need to be able to show how you calculated your work-related travel. - Logbook method
This method lets you claim a percentage of your total car expenses (fuel, servicing, insurance, registration, depreciation, etc.) based on business use. You’ll need to keep a logbook for 12 continuous weeks, and the percentage can be used for five years (unless your usage changes significantly).
What about GST and depreciation?
If your business is registered for GST, you may be able to claim the GST credit for the business portion of your vehicle purchase or running costs
Small businesses can claim depreciation up to the depreciation threshold (currently $69,674 for 2024–25).
If you’re wondering whether your car can be “tax-free,” the real question is whether it qualifies for deductions under ATO rules. The good news is, with the right structure, documentation, and advice, you can make the most of your vehicle’s business use and reduce your tax bill.
Please note that this is a section from our newsletter with updated corrected details.
