Whether you’re a finance manager trying to sort out employee reimbursements, or an employee trying to see what you can get reimbursed for after driving to that conference last weekend, our guide to car mileage allowances in Australia should help.
In this guide, we’ve covered everything from eligible vehicles to what counts as mileage, how to record your mileage (and when you need to), and more.
What is mileage reimbursement?
Mileage reimbursement—like anything involving the ATO—can be a little confusing. To make things more complicated, some terms—like “mileage reimbursement” and “car allowance”—are used interchangeably, although they’re not quite the same.
Here’s a quick primer if you’re unfamiliar:
Mileage reimbursement refers to a set rate that employees are reimbursed per kilometre for business mileage. The ATO (Australian Taxation Office) sets a standard mileage reimbursement rate, which is currently $0.78.
This mileage reimbursement rate is intended to take into account all of the costs associated with driving and owning a vehicle—things like registration, fuel, insurance, servicing, even depreciation.
Car allowance, on the other hand, typically refers to a reimbursement scheme companies may use where they give employees a fixed amount every month to cover business-related driving expenses. This is more common at companies where employees frequently drive for business, and it’s not based on individual monthly mileage.
What counts as business mileage
Of course, there are a number of rules and qualifications around what counts for reimbursable business mileage.
Typically, the following types of driving can be reimbursed as business mileage:
- driving to meetings or conferences that are for business but not at your typical workplace
- running errands or getting supplies for the business
- traveling from your usual workplace to a secondary or alternate place of business (i.e. a second office or a client’s office for a business meeting)
- traveling between two or more places of employment, for example, if you have more than one job
- going on customer visits
Commuting between your home and workplace typically does not count as business mileage except in rare circumstances.
To reimburse your employees for mileage—or to get reimbursed, if you are an employee—there are two primary methods: the mileage reimbursement method (the easy way) or the logbook method (the more detailed way).
How to use the mileage reimbursement method
The kilometre method is the easiest way to reimburse employees for mileage or claim business-related mileage tax deductions.
You don’t need receipts or a logbook to claim this deduction, but the ATO can ask for recorded evidence of how you calculated your business mileage. For this reason, it’s a good idea to have employees keep record of their business mileage anyways, including:
- how far they drove (in kms)
- the trip dates
- the trip purpose / business relation
To calculate employee’s mileage reimbursements, you simply multiply the number of kms they drove by the current reimbursement rate ($0.78) to figure their reimbursement amount.
How to use the logbook method
The logbook method is more complicated, but it also provides more flexibility. One caveat: the person claiming deductions using the logbook method must own the car they’re driving. You’ll need to use the logbook (or actual costs) method if you, or your employees, either:
- operate a non-standard vehicle for business purposes, such as a van or motorcycle, or
- drive more than 5,000km for business each year,
In short, the actual costs method requires you to—as you may have guessed—record and tally the actual costs related to the business use of your vehicle, which you can then deduct from your taxes.
The logbook method has three steps:
- keeping your logbook
- keeping records and receipts of expenses
- calculating your deduction
We’ll look at each of these steps in turn so that you can easily understand how to use the logbook method.
1. Keeping a logbook.
Keeping a logbook is pretty straightforward, but it does require detailed record keeping. The good news is, it doesn’t need to log every business drive you make for an entire tax year! Instead, it simply needs to cover at least 12 consecutive weeks that are “broadly representative” of the driving you do during the year.
For example, if you have several months that are very busy with driving, and several months that aren’t, your logbook should span both of those periods in order to be broadly representative. In your logbook, you need to include:
- the odometer reading at the start and end of each trip
- the destination of each trip
- the business purpose of each trip
- total number of kilometres traveled during each period
- odometer readings for the start and end of the logbook period
As long as your work and driving circumstances don’t change, your logbook will continue to be valid for five years. If you’re reusing a logbook from a previous year for this year’s tax return, you also need to include odometer readings from the start and end of the current tax year, or the period of the year in which you did work-related driving.
2. Keeping records and receipts
In addition to your logbook, you need to keep all receipts (or keep diary records of) motor vehicle expenses. Deductible expenses include:
- fuel and oil receipts
- registration costs
- car services and regular upkeep
- tires and general repairs
You should also keep a record of your car’s depreciation value, based on the purchase price. The ATO can ask you to provide an explanation for how you determine depreciation, so be sure to use a standard depreciation formula, and keep notes on how you calculated it for your vehicle.
3. Calculating your deduction
Finally, even with the actual costs method, you can’t deduct the full amount of every cost related to your car—only that which is proportionate to your work-related travel.
To calculate the percentage of business kilometres you drove, use the following formula:
( [total number of kms traveled during the logbook period] / [total number of work-related kms driven during the logbook period] ) x 100
This will give you the percentage of work-related mileage for your vehicle use.
Next, add up the total expenses for the period you’re claiming—all of the receipts and records you saved from step 2.
Finally, find your work-related car expenses by multiplying your work-related percentage by the total amount of actual expenses. This is the amount you can claim as your deduction. So, for example, if your logbook and the above formula determines that about 60% of your overall mileage is work-related, you’re eligible to claim 60% of your total car expenses as a deduction.
What are the car allowance rates in Australia for 2023?
In Australia, business mileage reimbursement rates only apply to standard cars that are designed to carry less than one tonne and fewer than nine passengers.
The ATO mileage reimbursement rate for 2022 - 2023 is $0.78 / km.
Typically, the ATO updates this reimbursement rate at the beginning of each financial year in July, so stay tuned for updates.
Drivers who operate vans, motorcycles or cars that carry excessive loads (greater than one tonne) can also receive mileage reimbursements from their employer. However, the business mileage tax deductions with the ATO are different. In order to deduct business mileage from these vehicles, you’ll have to use the actual costs (logbook) method instead of the cents per km method.
Employers can choose to reimburse employees for mileage at any rate, including one lower or higher than the set ATO rate. Any amount reimbursed per km at or under the ATO rate is considered non-taxable income. For any amount reimbursed above the current ATO rate, the amount paid out above the current rate is taxable income.
Is car allowance taxable in Australia?
The taxation of car allowances depends on the process used.
If you’re using mileage reimbursements, these reimbursements are tax-deductible for sole traders or small businesses who reimburse employees up to 5,000km per year per car. While companies can reimburse employees for distances above 5,000km, the amount reimbursed over 5,000km is not tax-deductible using the cents-per-km method. (It is tax-deductible if you use the actual cost or logbook method.)
Mileage reimbursements using the kilometre method are also considered tax-free for employees.
If you use a car allowance scheme, the car allowance is considered taxable income for both the employee and employer. Giving flat-rate car allowances is quite common, and a positive benefit for employees, but it’s not tax-deductible for employers. Employees, however, can still claim a tax deduction for business miles driven using the cents per km method.
If you use an actual costs reimbursement method, reimbursing employees based on a logbook of receipts for specific expenditures, your business can claim a tax deduction for any reimbursement you provide. In addition, these reimbursements are not considered taxable income for employees.
Frequently Asked Questions about mileage reimbursement
Still have more questions? We’re here to help.
How many kms can you claim for reimbursement without receipts?
In Australia, you can be reimbursed for up to 5,000kms without receipts using the kilometre rate. Alternatively, you can claim up to 5,000km of business mileage for tax deduction if you’re not reimbursed directly from your employer. If you drive more than that for business each year, you should use the actual costs method to get a more accurate reimbursement.
As an employee, should I claim mileage deductions on my taxes if I drive for work?
This depends on your employer’s reimbursement scheme.
If your employer reimburses you for business mileage using a cents-per-km method, you cannot claim business mileage deductions on your taxes, as you’ve already been properly reimbursed for it.
However, if your employer uses a car allowance method that’s considered taxable income for you, you can claim business mileage deductions on your taxes using the ATO’s cents-per-km method.
As an employer, do I have to reimburse employees for mileage at the set ATO rate?
No, employers can set their own per-km rates to reimburse employees that are either more or less than the standard ATO rate.
However, any amount per km above the standard ATO rate is considered taxable income, so be aware of taxation issues that may arise at tax time.
What vehicle expenses are tax deductible?
Vehicle expenses for business-related travel are tax-deductible for:
- employees, if your employer doesn’t provide you with a tax-free reimbursement scheme, or
- employers, if you reimburse employees for vehicle expenses using an actual costs method.
You can deduct the following vehicle expenses related to business travel:
- fuel and oil expenses
- registration costs
- vehicle insurances
- lease payments and interest charges
- depreciation value
- car services
- tires and repairs
- electricity charges
You cannot claim:
- capital costs, i.e. the purchase price of your car
- improvement costs, i.e. tinted windows, winter protection, etc.
- individual expenses if you’re already claiming, or being reimbursed for, mileage using a cents-per-km scheme
Claiming individual expenses is done using the logbook method (see above), and is most valuable if you drive more than 5,000km annually for business purposes.
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