If you run your own business as a sole trader, your car is probably one of your biggest costs — and one of your biggest opportunities to reduce your tax bill. Sole trader car expenses tax deductions work differently from employee claims. You have more flexibility, more potential to claim, and more record-keeping obligations.
This guide covers everything you need to know: the two ATO-approved methods, which expenses qualify, how GST interacts with your claims, and the mistakes that trigger ATO scrutiny. By the end, you’ll know exactly which method to use and what to document.
How the ATO treats car expenses for sole traders
As a sole trader, you run your business through your own name. There’s no separate company entity, which means your personal and business finances are blended — including your car.
The ATO allows sole traders to claim a deduction for work-related use of a car, but only for trips that are genuinely connected to earning income. The following trips typically qualify:
- Travelling between clients or job sites
- Going to a supplier, hardware store, or professional services appointment
- Driving to a temporary worksite (not your regular place of business)
- Attending work-related conferences, training, or meetings
The following do not qualify:
- Your regular commute between home and your usual work location
- Purely private travel (shopping, holidays, personal errands)
- Travel that is only partially work-related but you cannot establish the work purpose
The ATO gives sole traders two methods to calculate their deduction. You choose one method per car per income year, and you can switch between years.
Method 1: Cents per kilometre (simple and quick)
The cents per kilometre method is the simplest option. You multiply your work-related kilometres by the ATO’s fixed rate:
2025-26 rate: 88 cents per kilometre Annual cap: 5,000 kilometres per car
Maximum deduction under this method: $4,400 per car per year (5,000 km × $0.88).
This rate is intended to cover all car running costs — fuel, oil, tyres, servicing, registration, insurance, and depreciation. You cannot claim these costs separately on top of the per-km rate.
You don’t need receipts for fuel or servicing to use this method, but you do need a reasonable basis for your kilometre estimate. The ATO expects you to be able to explain how you calculated the number. A diary, work calendar, client records, or GPS data all serve as supporting evidence.
This method suits sole traders who:
- Drive fewer than 5,000 work kilometres per year
- Want a straightforward claim without detailed record-keeping
- Have a relatively modest actual cost per kilometre (if your actual costs per km are higher than 88c, the logbook method will deliver a larger deduction)
Method 2: Logbook method (claim actual costs)
The logbook method allows you to claim your actual car expenses, but only the work-use proportion. If 65% of your kilometres are work-related, you claim 65% of every car cost.
To establish the work-use percentage, you must keep a valid ATO logbook for at least 12 continuous weeks. The logbook must record:
- The start and end date of the logbook period
- Odometer reading at the start and end of the period
- For each trip: date, start and end odometer, total km, destination or work purpose
- Whether each trip was work or private
Once established, your logbook percentage is valid for five income years — unless you change vehicles or your pattern of work use changes materially. You’ll still need to record your annual odometer readings at 30 June each year.
See ATO Logbook Requirements for the full specification on what a valid logbook must contain.
Which car expenses can you actually claim?
Under the logbook method, you can claim the work-use proportion of every car expense. Here’s what that includes:
Fuel and oil Keep all fuel receipts or use a logbook app with fuel recording. Estimate reasonably if you pay by card and have bank statements.
Registration and CTP insurance These are annual costs you can claim at your logbook percentage. Keep the renewal notices.
Comprehensive insurance The annual premium, pro-rated for work use.
Servicing and tyres All workshop invoices, tyre purchases, roadside assistance subscriptions.
Loan interest or lease payments If the car is financed, the interest portion of your repayments is deductible at your work-use percentage. The capital repayment component is not a deduction — it’s reflected through depreciation instead.
Depreciation (capital allowance) Cars depreciate over time, and you can claim a portion of that decline as a deduction. For the 2025-26 year, the luxury car depreciation limit is $69,674 — costs above this limit cannot be depreciated for tax purposes. For cars under the limit, the prime cost or diminishing value method applies.
Parking fees and tolls Work-related parking and tolls are 100% deductible regardless of which car expense method you use — they are claimed separately and are not subject to the 5,000 km cap or the logbook percentage.
Car washes Deductible at your logbook percentage if the car is used for work.
GST and car expenses: what to know
If you’re registered for GST, car expenses create both a cost and an opportunity. You can claim an input tax credit for the GST included in most car expenses — fuel, servicing, insurance (if GST applies), and the purchase price of the vehicle.
The input tax credit is claimed at your work-use percentage. For example, if a service costs $330 including $30 GST, and your work-use percentage is 70%, you can claim an input tax credit of $21 (70% × $30).
Important limits:
- The luxury car tax threshold for GST purposes caps the amount of GST you can claim on a car purchase. For 2025-26, the threshold is $69,674 for standard cars. You cannot claim an input tax credit on the portion of the purchase price above this threshold.
- If you use the simplified accounting method or cash basis for GST, ensure your expense claims align with your BAS reporting.
GST-registered sole traders should record the GST component of car expenses separately in their bookkeeping. This makes BAS preparation straightforward and ensures you don’t miss credits.
The 5,000 km minimum and record-keeping
There is no minimum kilometre threshold for the logbook method — you can claim under the logbook method even for small amounts of work use. The 5,000 km cap applies only to the cents per kilometre method.
However, the ATO does expect that your records substantiate your claim. The general rule is:
- Claims under $300: no receipts required (but you need to be able to explain the claim)
- Claims over $300: written evidence (receipts, invoices, bank statements) required for each expense
For the logbook method, keeping receipts for everything is strongly advised regardless of amount, because the ATO can ask you to substantiate any part of your return.
Tripbook automatically records every trip — date, odometer, route, and duration — and lets you categorise trips as business or personal. At tax time, your logbook is ready to export.
Common mistakes sole traders make
Claiming commutes as work travel Your drive from home to your regular office or studio is private travel, not a work deduction. The exception is if your home is your genuine place of business and you travel to a separate work location from there.
Estimating kilometres without any basis The ATO can and does audit kilometre claims. “I think I drove about 8,000 work km” without any supporting records is a red flag. Use a logbook app or keep a diary.
Not updating the logbook when circumstances change If you change jobs, take on new clients, or move house, your work-use percentage may change. A five-year-old logbook reflecting 80% work use when your current pattern is 40% is not reliable evidence.
Mixing the two methods in the same year You must choose one method per car per income year. You cannot use cents per km for some trips and the logbook percentage for others.
Forgetting GST input tax credits If you’re registered for GST, every car expense you pay includes a GST component you can reclaim (subject to the limits above). Not claiming these credits is leaving money on the table.
Confusing the car and transport expense categories The ATO distinguishes between car expenses (for a passenger vehicle designed to carry fewer than nine passengers) and other vehicle expenses. Motorbikes, trucks, and vans over one tonne are treated differently. Check which category your vehicle falls into.
Putting it all together at tax time
At 30 June each year, gather:
- Your odometer reading and compare it to your 1 July reading to confirm total kilometres driven
- Your logbook (or kilometres estimate if using cents per km)
- All receipts for car expenses (fuel, servicing, insurance, registration, finance)
- Your GST records if registered
Calculate your work-use percentage from the logbook, then apply it to each expense. Add up the totals and report the deduction in your individual tax return under work-related car expenses (sole traders report income and expenses through the business schedule, but car expenses are typically reported as part of your individual return unless the car is a registered business asset).
If you are unsure whether to use the cents per km or logbook method, do a quick comparison: multiply your work kilometres by 88c, then estimate your actual costs at your expected work-use percentage. Use whichever gives the larger deduction.
Sole trader car expenses tax deductions are one of the most valuable deductions available to self-employed Australians. The key is maintaining the right records throughout the year rather than trying to reconstruct them in June.
For a broader overview of deductions available to ABN holders, see Work-Related Car Expenses Australia and ATO Car Expenses Sole Trader.
Download Tripbook to keep an ATO-compliant logbook automatically and maximise your sole trader car expense deduction every year.
