Car Expenses for Sole Traders in Australia: How to Claim What You're Owed

If you drive for work — visiting clients, picking up supplies, heading to a job site — those kilometres are costing you money. Fuel, registration, insurance, servicing, depreciation. It adds up fast.

The good news is the ATO lets sole traders claim motor vehicle expenses. The bad news is that most people either leave money on the table by using the wrong method, or get it wrong and invite scrutiny. Here’s how to get it right.

Two methods, one choice

As a sole trader, you have two ways to calculate your car expense deduction: the cents per kilometre method or the logbook method. You pick one per car per year — you can’t mix and match for the same vehicle in the same income year.

Both methods only apply to cars (defined by the ATO as a vehicle designed to carry fewer than one tonne and fewer than nine passengers including the driver). If you’re using a ute, van, or truck that exceeds these limits, different rules apply — you’ll claim actual expenses directly.

Cents per kilometre: simple but capped

This is the quick option. For the 2025–26 financial year, the ATO rate is 88 cents per business kilometre, up to a maximum of 5,000 business kilometres per car. That gives you a maximum deduction of $4,400.

You don’t need written evidence of every trip, but you do need to be able to show how you worked out your business kilometres if the ATO asks. A diary, calendar entries, or job records showing client visits all work.

When this method makes sense:

You drive relatively few business kilometres (under 5,000 per year), your running costs are average, or you simply don’t want the hassle of keeping a logbook. It’s a flat rate — it already accounts for fuel, rego, insurance, servicing, and depreciation, so you can’t claim any of those on top.

When it doesn’t: If you’re a tradie doing 15,000 business kilometres a year, or your actual costs are significantly higher than 88 cents per km, you’re capping your deduction at $4,400 when you could be claiming much more.

Logbook method: more work, bigger deduction

The logbook method lets you claim the business-use percentage of your actual car running costs — with no cap on kilometres. This is where serious deductions live.

Here’s how it works:

Step 1: Keep a logbook for 12 consecutive weeks. For every trip during this period, record the date, odometer readings (start and finish), kilometres travelled, the purpose of the trip (business or private), and a description of the business reason. You don’t need to record purely private trips in detail, but you do need to capture the total kilometres for the period.

Step 2: Calculate your business-use percentage. Divide your business kilometres by your total kilometres for the logbook period. If you drove 4,200 km in total and 2,940 km were for business, your business-use percentage is 70%.

Step 3: Apply that percentage to your actual expenses for the full year. This includes fuel, oil, registration, insurance, repairs, servicing, tyres, loan interest (if you’re financing the vehicle), and depreciation or lease payments.

Step 4: Use that logbook for up to five years — as long as your driving patterns haven’t changed significantly. If they have (say you’ve taken on new clients across town), you’ll need to do a new one.

An example: You’re a photographer who drives 20,000 km per year, 70% for business. Your actual running costs — fuel, rego, insurance, servicing, depreciation — total $12,000. Your deduction: $8,400. Compare that to the $4,400 maximum under the cents per kilometre method.

What counts as business travel?

This is where people get tripped up. Not every drive with a vague business connection qualifies.

Business travel includes: driving to meet a client or supplier, travelling between two separate workplaces, going to a job site, picking up materials or stock, driving to the bank to deposit business takings, travel for business conferences or training, and trips to your accountant or solicitor for business matters.

Business travel does not include: your commute from home to your regular place of business. If you have a workshop, studio, or office you go to every day, the trip between home and that location is private — not deductible. This catches a lot of people. The ATO is very clear: ordinary home-to-work travel is not a business expense, even if you’re a sole trader.

The exception: If your home is your principal place of business (you have a dedicated home office and no other regular workplace), then travel from home to a client site or temporary work location is business travel. This applies to many sole traders — freelancers, consultants, contractors who work from home and visit clients.

Depreciation and the car limit

If you own your car (or hold it under hire purchase), you can claim depreciation — the decline in value — as part of your running costs under the logbook method. But there’s a cap.

For the 2025–26 income year, the car cost limit is $69,674. Even if your car cost $90,000, you can only depreciate it based on the limit amount. This applies regardless of whether you bought it new or second-hand.

You might be wondering about the instant asset write-off. The current threshold is $20,000 for businesses with turnover under $10 million. Most cars cost more than $20,000, so they won’t qualify for an immediate deduction. Instead, you add the car to your small business depreciation pool and claim 15% in the first year and 30% each year after that. If the car is under $20,000 (rare, but possible for an older used vehicle), you can write off the full cost in the year you start using it for business. For more on the instant asset write-off, see our guide to the scheme.

GST and motor vehicle expenses

If you’re registered for GST, you can claim GST credits on the business portion of your car expenses — fuel, servicing, insurance premiums (some are GST-free, like CTP), parts, and the purchase price (up to the car limit).

Make sure you have a tax invoice for any expense over $82.50 (GST-inclusive) before claiming the credit. For fuel, you can use a reasonable estimate based on your logbook percentage rather than keeping every single petrol receipt — but having the receipts is always better.

Common mistakes that cost you

Using cents per km when the logbook method would save you thousands. If you drive more than 5,000 business kilometres or your actual costs are high, run the numbers both ways. The logbook takes effort upfront, but it’s valid for five years and can double or triple your deduction.

Claiming the commute. Home to your regular workplace is private travel. Full stop. If the ATO audits you and finds you’ve been claiming your daily commute as business travel, you’ll be paying the deduction back with interest — and possibly a penalty.

Not keeping a logbook at all. Some sole traders claim large vehicle deductions based on rough estimates. The ATO has data-matching capabilities and can cross-reference fuel purchases, toll records, and service history with your claimed kilometres. If the numbers don’t add up, you’ll be asked to justify them.

Forgetting to update the logbook when circumstances change. Your five-year-old logbook showed 80% business use when you had clients all over the city. Now you work from home most days and drive half as much for business. Using the old percentage is a red flag.

Double-dipping. If you use the cents per kilometre method, the rate already covers everything — fuel, rego, insurance, servicing, depreciation. You can’t claim any of those expenses separately on top of the per-kilometre amount.

Which method should you choose?

As a rough guide:

Choose cents per kilometre if you drive fewer than 5,000 business kilometres per year, your car costs are modest, or you want simplicity and minimal record-keeping.

Choose the logbook method if you drive significant business kilometres (especially over 5,000 per year), your actual running costs are high, you’ve recently bought or are financing a vehicle, or you want the maximum possible deduction.

If you’re unsure, keep a logbook for 12 weeks anyway. You can always fall back to cents per km if the logbook doesn’t give you a better result, and you’ll have the data to make an informed decision.

Keeping records that hold up

Regardless of which method you use, good records are non-negotiable. The ATO requires you to keep records for at least five years from the date you lodge your tax return.

For the cents per kilometre method, keep a diary, calendar, or digital record showing your business trips — dates, destinations, and purposes. You don’t need odometer readings, but you need to be able to justify your claimed kilometres.

For the logbook method, keep your logbook (obviously), plus receipts or records for all vehicle expenses — fuel, registration, insurance, repairs, loan statements, and the purchase contract. Digital records are fine. In fact, accounting software that connects to your bank and automatically captures expenses makes this dramatically easier than chasing paper receipts at year’s end.

Next steps

If you’re currently using cents per kilometre but driving well over 5,000 business kilometres, start a logbook this week. It takes 12 weeks to complete, and once it’s done, it’s valid for five years. That one effort could be worth thousands in additional deductions every year.

For a broader view of everything you can claim, check out our guide to small business tax deductions. And if you’re weighing up whether your business structure is still right for you, our comparison of sole trader vs company breaks down the tax implications.