Motor vehicle deductions: cents per km vs the logbook method

What counts as business travel

Business kilometres include driving between two workplaces or job sites in the same day, to clients and suppliers, to the bank or accountant on business, and to collect materials. Travel from home to your regular place of work is private, even if you carry tools, unless your home is a genuine base of operations and you travel to varying sites, or the tools are bulky and there is nowhere secure to leave them at work.

A tradie who leaves home for a different site each day and has no fixed workplace is generally on business from the first trip. An IT contractor who goes to the same client office every day is commuting.

Method 1: cents per kilometre

You multiply your business kilometres by the ATO rate. For 2025-26 the rate is 88 cents, so 3,000 business kilometres is a $2,640 deduction. The method is capped at 5,000 kilometres a year, a maximum of $4,400 at that rate. Check the ATO for the 2026-27 rate before you lodge.

The rate covers everything: fuel, servicing, rego, insurance, depreciation. You cannot claim any of those separately. You do not need receipts, but you need to be able to show how you worked out the kilometres, such as a diary of trips or a trip log in an app. FlowFi’s mileage tracker does this and applies the rate for you.

Method 2: the logbook method

You keep a logbook for a continuous 12-week period recording every trip: date, odometer start and end, kilometres, and purpose. The business kilometres as a share of total kilometres is your business-use percentage. That percentage is then applied to all your car expenses for the year: fuel, servicing, tyres, rego, insurance, interest on a car loan, and depreciation.

The logbook is valid for five years as long as your pattern of use does not change significantly. You need odometer readings at the start and end of each year, and receipts for the expenses (fuel can be estimated from odometer readings and average consumption if you prefer).

A driver doing 25,000 kilometres a year at 70% business use with $12,000 of running costs and depreciation claims $8,400, well above the cents-per-kilometre cap.

Which method wins

Cents per kilometre suits low mileage and simplicity. The logbook method suits anyone over about 5,000 business kilometres a year or with an expensive car, because depreciation on the business share is often the largest single component. You can change methods from year to year as long as you have the records for the one you choose.

The ute exception

Both methods above apply to cars: vehicles designed to carry fewer than nine passengers and a load of less than one tonne. A vehicle that is not a car, such as a one-tonne-plus ute, a van or a truck, is claimed on actual costs at the business-use percentage, and the cents-per-kilometre method is not available. You still need a reasonable record of business use, and a logbook is the easiest way to establish it.

Depreciation and the car limit

If you use the logbook method, the business share of the car’s decline in value is deductible. For cars there is a cost limit for depreciation ($69,674 in 2025-26; check the ATO for the current year), so a more expensive car is depreciated as if it cost the limit. The instant asset write-off can apply to a car under the threshold, at the business-use percentage.

GST on car expenses

If you are registered for GST, claim the business-use percentage of the GST on fuel, servicing, insurance and the purchase price (up to the car limit). If you use cents per kilometre for income tax, you can still claim GST credits on actual expenses at a reasonable business percentage, but keep the tax invoices.