Claiming car expenses as a tax deduction is made simple by using the cents per kilometre method. Removing the stress of tracking every expense you incur on your car frees up your time to do more important things in life.
If you are looking to make claiming car expenses on your tax return easier, this blog is for you. In this article, we will discuss the cents per kilometre method, what vehicles are eligible, what car expenses can and can’t be claimed under the method, and the pros and cons of using the cents per kilometre method.
What is the ATO cents per kilometre method?
Using the cents per kilometre method, you can claim up to 5,000km annually for work-related use of your car. The cents per km method uses a flat rate that is multiplied by the number of kilometres you have travelled for a given year. The ATO cents per km 2023 rate is 85 cents.
For example, you have used your car for work and travelled 4,500km. Under the cents per km method, you multiply 4,500km by 85c. That means you can claim $3,825 (4,500km x 85c) on your tax return as a car expenses tax deduction. The equation is so easy, that you do not require a cents per km calculator!
The 5,000km are calculated per vehicle. If you jointly own a car with someone and use it for various income-generating activities, you can deduct 5,000km each.
Here is the ATO cents per km 2023 rate and previous years:
| Year | ATO km rate |
| FY23-24 | 85 cents |
| FY22-23 | 78 cents |
| FY20-21, 21-22 | 72 cents |
| FY18-19, 19-20 | 68 cents |
| FY15-16, 16-17, 17-18 | 66 cents |
What vehicles are eligible for the cents per kilometre method?
Now we understand what the cents per km method is, but what cars are eligible to claim the deduction?
Vehicles you can claim under the cents per km method:
- Cars that carry a load of less than one tonne and carry fewer than 9 passengers.
Vehicles you cannot claim under the cents per km method:
- Motorcycles
- Vehicles that carry more than one tonne (like certain trucks)
- Vehicles that hold more than 9 passengers (buses and certain vans)
Work related car expenses – What can and can’t you claim
Understanding what expenses, you can and can’t claim on your car is important.
Car expenses can only be claimed if they are used for work duties such as the following:
- Travelling to places that are not your regular workplace (client’s house, delivering or collecting supplies)
- Your employer requires you to start work at home, and then travel to your workplace
- You have no fixed workplace (travel from site to site)
- You carry equipment for work that can’t be securely stored at your workplace
Car expenses cannot be claimed for the following reasons:
- Travelling to and from your regular place of work
- Your employer pays for your car expenses
- You salary sacrifice or have a novated lease on your car
What are the pros and cons of using the cents per km method?
The cents per km method for claiming car expenses has its advantages and disadvantages. Let’s explore some of the pros and cons of the method:
Pros:
- Simple to use: The cents per km method is easy to track as it only requires you to record how many kilometres you have travelled. Other methods require you to record the cost of different expenses.
- No need for receipts: The only thing you are required to track is how far you have travelled as the expenses are accounted for under the cents per kilometre method. That means you do not need to keep receipts.
- Saves you time: When tax time arrives, you do not need to gather and organise your receipts. This saves you time and effort as you only need to look at the number of kilometres you have logged.
Cons:
- Limited to 5,000km: The cents per kilometre method is capped at 5,000km. This means any distance you travel over the cap will not be accounted for.
- Does not consider actual costs: The method does not consider the actual expenses you incur. That means you may be missing potential tax savings.
- Not suitable for all situations: The method may not be suitable for people who incur high expenses or use their car for personal and work reasons. Other methods such as the ATO logbook method or actual cost method may be more beneficial. Learn more about other car expense methods, here.
In summary, the cents per kilometre method is easy to use and saves people time. The method has its faults as it does not consider all actual expenses incurred, and can only be used for claiming 5,000km of travel. Cars that carry less than 9 passengers and under a tonne can be used for the method. Expenses can only be claimed if the car is used for work related car expenses. There is no need for a cents per km calculator as the calculation is simply, the number of kilometres travelled multiplied by the ATO km rate of 85c. For example, if you travelled 4,000km, you could claim $3,400 (4,000km x 85c).
We can assist you with your taxes and more!
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