The cents per kilometre method simplifies car expense claims, but it comes with strict rules that trip up many taxpayers. Here's what you need to know to avoid costly mistakes.
Myth 1: Claim Travel Between Home and Work
Generally, no. Regardless of the method used, taxpayers cannot claim car expenses for commuting to and from work. There are very few exceptions to this rule—such as when taxpayers must carry bulky items essential to their work and their workplace provides no secure storage.
Myth 2: Just Claim 5,000 kms, No Records Needed
Wrong. Records must be kept to evidence:
- Ownership of the car or a personal lease (or if not theirs, proof of a private arrangement to use the car)
- How the car was used for work-related trips
- How the kilometres were worked out
Documentation is essential for substantiating any claim. The ATO expects taxpayers to maintain contemporaneous records that support the kilometres claimed.
Myth 3: Any Lease Type Qualifies for Car Expense Claims
This is only correct for personal leases. If your client has a novated lease through a salary sacrifice arrangement, the car is not owned by the taxpayer, so they cannot claim car expenses. The ATO receives data about novated leases to identify taxpayers who shouldn't be claiming these deductions.
However, they may still claim work-related parking and tolls if these costs are not reimbursed by their employer.
Myth 4: Claim Decline in Value Using Both Methods
Wrong. The decline in value is built into the cents per kilometre method, along with all other car expenses including registration, insurance, fuel, maintenance, and repairs. The decline in value can only be claimed as a separate expense when using the logbook method.
Myth 5: Mix Methods Throughout the Year to Maximise Deductions
Wrong. Taxpayers must use the same method for the full income year. They cannot split the year between the two methods. If they're uncertain which method suits them best, advise them to keep all records throughout the year so they have flexibility when lodging.
Tip: Your clients can use the myDeductions tool in the ATO app to add trips, which can then be shared with you for review and lodgment.
Getting the Most From Your Car Expense Claims
Understanding these five myths helps your clients claim with confidence. The key takeaway: choose one method, keep thorough records, and stick to the rules throughout the financial year. When your clients are informed about what the ATO accepts and what it doesn't, they're in a much stronger position to maximise legitimate deductions without triggering audits or penalties.
For clients still deciding between methods, the cents per kilometre approach works best when they can demonstrate consistent, work-related travel with clear documentation. The logbook method offers more flexibility for those with variable work patterns and significant vehicle expenses.
