ATO Car Expense Deductions 2025–26: Logbook vs Cents Per Kilometre
Choose the right ATO car deduction method for 2025–26. Compare cents per km vs logbook with real examples, eligible expenses, the luxury car limit and common audit triggers.
Millions of Australians drive for work and are entitled to claim a car expense deduction — yet the ATO consistently flags it as one of the most overclaimed and incorrectly claimed deductions at tax time. The two allowed methods have different rules, different caps and produce very different outcomes depending on your situation. Here is exactly how each method works for FY 2025–26, with real dollar comparisons so you can choose the one that saves you the most.
The two ATO-approved methods
The ATO allows only two methods for individual taxpayers claiming car expenses. You choose one method per car per year — you cannot mix them, and you cannot claim actual receipts outside of the logbook method.
| Feature | Cents per kilometre | Logbook method |
|---|---|---|
| Kilometre cap | 5,000 km/year | No cap |
| Records required | Work purpose for each trip | 12-week logbook + all receipts |
| What's covered | All running costs (one rate) | All actual costs × business % |
| Depreciation included? | Yes (in the rate) | Yes (calculated separately) |
| Best for | Low work km, simple claims | High km or expensive car |
| Logbook needed? | No | Yes (12 weeks, valid 5 years) |
Cents per kilometre method — rules and rate
The simplest method. You multiply your work-related kilometres by the ATO's published rate for the year. The rate covers all car running costs — you cannot add separate receipts on top of it.
- FY 2024–25 rate: $0.88 per kilometre
- FY 2025–26 rate: Confirm on ato.gov.au before lodging — updated annually in June
- Maximum claim: 5,000 km × rate (e.g. at $0.88 = $4,400 maximum)
- Engine size: Irrelevant — the same rate applies to all vehicles including EVs
Worked example — cents per km
Tara drives 3,200 work-related kilometres in FY 2025–26. Using the $0.88 rate: 3,200 × $0.88 = $2,816 deduction. At a 32.5% marginal rate (+ 2% Medicare Levy), this reduces her tax bill by approximately $970.
She does not need fuel receipts, service records or any car-related paperwork. She does need to be able to explain the work purpose of each trip if the ATO asks — a work calendar, client visit records or a travel diary app is enough.
Logbook method — how it works
The logbook method lets you claim your actual car expenses, multiplied by the percentage of kilometres driven for work. Because actual costs can be substantial — especially for newer or more expensive vehicles — this method typically produces a much larger deduction than cents per km for anyone driving more than 5,000 work km or running a costly vehicle.
Keeping a valid logbook
Your logbook must cover a continuous 12-week period and record every single trip — work and private — during that time. For each trip you need: date, start and end odometer reading, destination, and the work purpose (or "private" for personal trips). The business-use percentage from those 12 weeks applies to your full-year car costs.
Once completed, the logbook is valid for five years provided your driving pattern doesn't change significantly (new job, different role, moved house). You must record odometer readings at the start and end of every income year you use the logbook.
What you can claim under the logbook method
- Fuel and oil (or electricity for EVs)
- Registration and compulsory third-party insurance
- Comprehensive insurance premiums
- Servicing, repairs and tyres
- Interest on a car loan (for the work-use portion)
- Lease payments (for the work-use portion)
- Car wash costs (if carrying work equipment)
- Depreciation — calculated at ATO prescribed rates, capped at the luxury car cost limit
The luxury car cost limit
Depreciation can only be calculated on the first $69,674 of a car's cost (FY 2024–25 limit — updated annually). If your car cost $90,000, you calculate depreciation as if it cost $69,674. This affects the logbook method but not cents per km.
Worked example — logbook method
James bought a $45,000 SUV in 2023. His logbook shows 72% business use. His annual car costs are: fuel $3,200; registration $900; insurance $1,400; servicing $800; interest on loan $2,600; depreciation $5,850 (at 25% diminishing value on $45,000, year 2). Total annual costs = $14,750. At 72% business use: $10,620 deduction. At 37% marginal rate (+2% Medicare), tax saving ≈ $4,140.
Compare this to the cents per km cap of $4,400 — the logbook method saves James roughly $2,280 more in tax in this scenario.
Side-by-side comparison: which method saves more?
| Scenario | Work km/year | Cents per km | Logbook (est.) | Better method |
|---|---|---|---|---|
| Low-use, cheap car | 2,500 | $2,200 | ~$1,800 | Cents per km |
| Moderate-use, average car | 5,000 | $4,400 (max) | ~$5,500 | Logbook |
| High-use, average car | 12,000 | $4,400 (capped) | ~$13,200 | Logbook by far |
| Low-use, expensive car | 3,000 | $2,640 | ~$4,800 | Logbook |
The tipping point is roughly 5,000 km per year for average vehicles. Above that, or with a car costing more than $30,000, the logbook almost always wins. Below 5,000 km with a modest vehicle, cents per km is simpler and often comparable.
After you calculate your car deduction, use our Income Tax Calculator to see exactly how much tax you save based on your marginal rate.
What you cannot claim — common mistakes the ATO looks for
Car expenses are one of the ATO's highest audit priorities for individual returns. These are the most common errors:
- Claiming the commute. Driving from home to your regular workplace and back is never deductible — even if you work from home some days. The exception: if your home is a genuine place of business AND you travel to another workplace on the same day.
- Inflating the logbook percentage. The ATO cross-references logbook percentages with industry norms. A nurse claiming 95% business use for a personal car will raise flags.
- Claiming cents per km over 5,000 km. The cap is firm. Claiming 7,000 km at the cents per km rate is incorrect — you can only claim 5,000 km this way.
- No records for cents per km claims. While you don't need receipts, you must have evidence of the work purpose. "I drove for work sometimes" is not enough.
- Mixing methods. You cannot use logbook for some months and cents per km for others on the same vehicle in the same year.
Electric vehicles and the cents per km rate
EVs are treated identically to petrol vehicles for individual car expense deductions. The same cents per km rate applies (it already incorporates energy costs), and the logbook method works the same way — you claim home charging costs in place of fuel. Keep a record of your charging sessions and the proportion of home electricity used for work travel.
A separate benefit exists when an employer provides an EV: zero-emission vehicles under the luxury car tax threshold ($89,332 in FY 2024–25) are exempt from Fringe Benefits Tax under the Electric Car Discount. This is an employer-level benefit, not a personal deduction.
Frequently asked questions
What is the ATO cents per kilometre rate for 2025–26?
The ATO updates the cents per kilometre rate each financial year. For FY 2024–25 the rate was $0.88 per km. The 2025–26 rate is published by the ATO in the Federal Register before 1 July — check ato.gov.au for the confirmed current rate before lodging your tax return. The rate is the same regardless of engine size or vehicle type (including EVs).
Can I claim car expenses for driving to and from work?
No — ordinary commuting between your home and regular workplace is not deductible. The ATO treats this as private travel. Exceptions apply when: you carry bulky tools or equipment that cannot be stored at work; your home is a place of business and you travel to a second workplace; or you travel between two separate workplaces in the same day. If you are unsure, keep a travel diary for a month to establish the pattern.
How long does a logbook need to be kept?
A logbook must cover a continuous 12-week period that is representative of your typical work travel throughout the year. Once completed, the logbook is valid for five years provided your work-related travel pattern doesn't change significantly. You must also record odometer readings at the start and end of every income year that you use the logbook method.
Which method gives a bigger deduction — logbook or cents per km?
It depends on how many kilometres you drive and your actual car costs. Cents per km is capped at 5,000 km (maximum deduction: 5,000 × rate). If you drive more than 5,000 work km per year, or have a high-cost vehicle with large depreciation, fuel and loan interest, the logbook method almost always produces a larger deduction. Use the comparison table in this article to estimate which is better for your situation.
Can I claim car expenses if I use a car I don't own?
The ATO's car expense rules apply to cars you own, lease, or hire. You can claim on a car you lease in your own name. You cannot claim car expenses under these rules for employer-provided vehicles (you may be able to claim via a separate employee expense mechanism). If you use someone else's car (a partner's or parent's) for work, you generally cannot claim the ATO car deduction.
Are electric vehicles treated differently for car expense deductions?
No — electric vehicles are subject to the same two methods (cents per km or logbook) as petrol and diesel vehicles. The cents per km rate covers all running costs including electricity. Under the logbook method, home charging costs can be included in fuel/energy expenses. There is no separate EV deduction rate. Note that zero-emission vehicles under $89,332 (FY 2024–25) are exempt from Fringe Benefits Tax if provided by an employer, which is a separate consideration.
What records do I need to keep for car expense deductions?
For cents per km: you must be able to show the work-related purpose of each trip if audited. A calendar, diary or app recording destinations and work purposes is recommended — you do not need to record every kilometre but must have a reasonable basis for the claim. For logbook: complete entries for every trip during the 12-week period (date, destination, purpose, start/end odometer), plus receipts for all fuel, servicing, insurance, registration and loan statements.
Car expense deduction rules and the cents per kilometre rate are based on ATO guidance current as at July 2025. The cents per kilometre rate is updated by the ATO each financial year — always verify the current year's rate at ato.gov.au before lodging your tax return. This article is general information only and does not constitute tax advice. Consult a registered tax agent for advice specific to your circumstances.