ATO Car Reimbursement Guide for Employees and Sole Traders
Using your own vehicle for work can lead to several different payments and tax outcomes.
You might:
- Receive a reimbursement from your employer
- Be paid a car allowance
- Claim a deduction for business-related vehicle expenses in your tax return
Although these terms are often used interchangeably, they are not the same.
What this guide covers
This guide explains:
- The difference between reimbursements, allowances and tax deductions
- The rules for employees using their own cars
- Motor vehicle deductions for sole traders
- How to calculate your business-use percentage
- What an ATO-compliant vehicle logbook should contain
- How Travel Logs can simplify mileage and vehicle record keeping
Important: This guide provides general information only. It does not constitute tax, accounting or legal advice. Tax rules and kilometre rates can change, so check the latest ATO guidance or speak with a registered tax agent about your circumstances.
Reimbursement, allowance or tax deduction?
Strictly speaking, the ATO does not normally reimburse employees for using their vehicles.
A vehicle reimbursement is generally a payment from an employer to compensate an employee for an expense the employee has already incurred. This may include fuel, parking, tolls or the use of a privately owned vehicle.
The ATO determines how these payments are treated for tax purposes and when an employee or business owner can claim a deduction.
Reimbursement
An employer repays an actual expense that an employee has already incurred.
Typical tax treatment: The employee generally cannot claim a deduction for the portion of the expense that has been reimbursed.
Car allowance
An employer pays an estimated amount, often based on the number of kilometres travelled.
Typical tax treatment: The allowance is generally assessable income. The employee may separately claim an eligible deduction if the ATO requirements are met.
Tax deduction
An employee or business owner claims eligible vehicle expenses through their tax return.
Typical tax treatment: The claimant must have incurred the expense, undertaken eligible travel and met the ATO's record-keeping requirements.
Key point: A payment described by a workplace as a “mileage reimbursement” may technically be treated as an allowance if it is calculated using a fixed amount per kilometre rather than repaying a precisely identified expense.
Current ATO cents-per-kilometre rates
The cents-per-kilometre method provides a simplified way to calculate eligible work-related or business car expenses.
The applicable rate depends on when the travel occurred.
2026–27 income year
Travel period: From 1 July 2026
Rate: 91 cents per kilometre
Maximum kilometres: 5,000 eligible kilometres per car
Maximum calculation: $4,550 per car
2025–26 income year
Travel period: 1 July 2025 to 30 June 2026
Rate: 88 cents per kilometre
Maximum kilometres: 5,000 eligible kilometres per car
Maximum calculation: $4,400 per car
Which rate should you use? A person lodging their 2025–26 tax return after 1 July 2026 generally uses the 88-cent rate for eligible travel that occurred between 1 July 2025 and 30 June 2026. The 91-cent rate applies to eligible travel occurring from 1 July 2026.
What the rate includes
The cents-per-kilometre rate incorporates the car's operating expenses, including:
- Fuel
- Servicing
- Repairs
- Registration
- Insurance
- Decline in value
You cannot separately claim these operating costs for the same vehicle kilometres.
You do not need receipts for every individual running expense when using this method. However, you must be able to demonstrate how you calculated your eligible kilometres.
Important: The ATO rate is a tax-deduction calculation rate. It does not automatically determine how much an employer must reimburse. An employee's entitlement may instead be set by an award, enterprise agreement, employment contract or workplace vehicle policy.
ATO car reimbursement rules for employees
Employees may be entitled to a payment from their employer when they are required to use a privately owned vehicle while performing their duties.
Potentially eligible work-related travel may include:
- Driving from one workplace to another
- Visiting customers, clients or suppliers
- Attending an off-site meeting
- Travelling to a temporary work location during the workday
- Making work-related deliveries or collections
- Travelling to required training, conferences or other work activities
Home-to-work travel
Normal travel between your home and regular workplace is generally private travel.
This usually remains the case even when you:
- Perform minor work tasks before leaving home
- Check emails before travelling
- Carry ordinary work equipment
- Complete work after returning home
Limited exceptions can apply. Unusual travel arrangements should be checked against current ATO guidance.
When your employer reimburses an expense
When an employer reimburses an employee for an expense, the employee generally cannot also claim that expense as a tax deduction.
Example: Fully reimbursed expense
An employee incurs:
- $55 in eligible fuel expenses
- $25 in work-related tolls
The total expense is:
$55 + $25 = $80
If the employer reimburses the full $80, the employee has not ultimately borne the cost and would generally be unable to claim the reimbursed amount as a deduction.
Partially reimbursed expenses
Where an employer reimburses only part of an eligible expense, the unreimbursed portion may potentially be deductible.
The employee must still:
- Have incurred the expense
- Meet the relevant ATO requirements
- Retain appropriate supporting records
When your employer pays a car allowance
A car allowance is generally an estimated payment rather than the repayment of a precisely identified expense.
For example, an employer might pay a fixed amount for each approved business kilometre.
The allowance will generally be included in the employee's assessable income.
Receiving an allowance does not automatically create a tax deduction. The employee must still:
- Have undertaken eligible work-related travel
- Have incurred the relevant vehicle expenses
- Maintain appropriate supporting records
- Calculate the deduction using an accepted ATO method
Key point: The amount claimed as a deduction is not automatically equal to the allowance received.
Claiming car expenses as an employee
Employees who own or lease a qualifying car can generally choose between two calculation methods:
- The cents-per-kilometre method
- The logbook method
Method 1: Cents per kilometre
The cents-per-kilometre method may be suitable when:
- You travel no more than 5,000 eligible kilometres in the car during the income year
- You want a simpler calculation
- You can show how the kilometre total was calculated
- Claiming a percentage of actual expenses would not produce a better result
Calculation
Eligible work-related kilometres × applicable ATO rate
Example
An employee travels 3,200 eligible kilometres during the 2026–27 income year.
3,200 km × $0.91 = $2,912
The calculated deduction is $2,912.
The employee must still exclude:
- Private travel
- Ordinary home-to-work commuting
- Any kilometres that were not genuinely work related
Method 2: Logbook
The logbook method calculates the work-related percentage of the car's actual expenses.
It may be useful when:
- You travel more than 5,000 eligible kilometres
- A substantial percentage of the car's use is work related
- Your actual vehicle expenses are relatively high
- You are prepared to keep receipts, invoices and odometer records
Under this method, you maintain a representative logbook for at least 12 continuous weeks.
You then use the logbook to calculate the vehicle's work-related-use percentage and apply that percentage to eligible car expenses for the income year.
Motor vehicle deductions for sole traders
Sole traders can generally claim the business-related portion of expenses incurred while using a vehicle to operate their business.
For a qualifying car, a sole trader may usually choose between:
- The cents-per-kilometre method
- The logbook method
The 5,000-kilometre limit also applies when a sole trader uses the cents-per-kilometre method.
The limit applies:
- Per car
- Per income year
Potentially eligible business trips
Business travel may include:
- Travelling between business locations
- Visiting customers or project sites
- Collecting stock or business supplies
- Making deliveries
- Attending meetings with accountants, advisers or suppliers
- Travelling to business-related training or events
Private travel must be excluded
Private trips may include:
- Personal errands
- Holidays
- Social travel
- Family-related travel
- Other journeys unrelated to earning business income
Important: A vehicle does not become 100% deductible simply because it is registered in the business name or mainly used during working hours.
Different rules can apply to companies, trusts, partnerships and vehicles that do not meet the ATO definition of a car. These businesses may need to use an actual-cost method instead of the simplified car-expense methods.
How to calculate your business-use percentage
When using the logbook method, calculate the percentage of the vehicle's total travel that relates to eligible business or work activities.
Formula
Business kilometres ÷ total kilometres × 100
Example
During a representative 12-week logbook period, a sole trader records:
Total vehicle travel: 9,000 kilometres
Eligible business travel: 3,600 kilometres
The business-use percentage is:
3,600 ÷ 9,000 × 100 = 40%
The vehicle's business-use percentage is therefore 40%.
If the sole trader incurs $12,000 in eligible vehicle expenses during the income year:
$12,000 × 40% = $4,800
The preliminary deductible amount is $4,800.
Further adjustments may be required depending on:
- The type of expense
- Vehicle ownership
- GST treatment
- Finance arrangements
- Applicable car-cost limits
Record all travel during the logbook period
A reliable business-use percentage requires both business and private travel to be recorded.
Recording only business trips does not establish the vehicle's total use and may produce an unsupported percentage.
Your records should make it possible to reconcile:
- Individual trips
- Total kilometres travelled
- Beginning odometer readings
- Ending odometer readings
What should an ATO vehicle logbook contain?
An ATO logbook should cover at least 12 continuous weeks and be broadly representative of how the car is used throughout the year.
Record each journey
For every journey, record:
- The date
- The starting odometer reading
- The ending odometer reading
- The number of kilometres travelled
- The reason for the journey
- Whether the journey was business, work related or private
Record the logbook period
You should also record:
- The date the logbook period begins
- The date the logbook period ends
- The odometer reading at the beginning of the period
- The odometer reading at the end of the period
Record the vehicle details
Keep details such as:
- Make
- Model
- Registration
- Relevant ownership or lease information
Record annual odometer readings
You should record the vehicle's odometer reading at the beginning and end of each relevant income year.
You should also retain your calculation showing how the business-use or work-related-use percentage was determined.
How long does a logbook remain valid?
A representative logbook can generally remain valid for five years.
However, a new logbook may be required sooner if your pattern of vehicle use changes materially.
This may occur after:
- Changing jobs
- Taking on a substantially different role
- Relocating your business
- Changing your regular workplace
- Significantly increasing or reducing business travel
- Changing how the vehicle is used
Practical tip: Do not continue relying on an old logbook simply because it is less than five years old. It must still reasonably represent your current vehicle use.
Records you should keep
The records required depend on the calculation method you use.
Records for the cents-per-kilometre method
Keep evidence showing how you calculated the number of eligible kilometres.
This may include:
- A mileage diary
- Calendar entries
- Customer appointment records
- Job sheets
- Invoices showing service locations
- Employer mileage claims
- Digital trip records
You do not need to retain every fuel or servicing receipt specifically for the cents-per-kilometre calculation because those expenses are incorporated into the rate.
Records for the logbook method
In addition to the logbook, retain evidence of eligible expenses.
This may include:
- Fuel purchases
- Registration
- Insurance
- Servicing
- Repairs and maintenance
- Lease payments
- Finance or interest expenses, where applicable
- Vehicle purchase documents
- Records used to calculate decline in value
- Odometer readings
- Relevant parking expenses
- Relevant toll expenses
The ATO generally requires motor vehicle expense records to be retained for five years.
Records should be:
- Readable
- Accessible
- Complete
- Capable of explaining how the claim was calculated
Common vehicle reimbursement and logbook mistakes
Claiming ordinary commuting
Travel from home to a regular workplace is usually private, even when the distance is significant or public transport is unavailable.
Claiming an expense after being reimbursed
An employee generally cannot claim a deduction for the portion of an expense their employer has fully repaid.
Treating an allowance as an automatic deduction
Receiving a car allowance does not automatically entitle an employee to claim the same amount as a tax deduction.
Automatically claiming 5,000 kilometres
The 5,000-kilometre figure is a maximum, not an automatic entitlement.
You must have a reasonable basis for the number of kilometres claimed.
Claiming running costs twice
Fuel, registration, insurance, servicing, repairs and decline in value are already incorporated into the cents-per-kilometre rate.
You cannot separately claim those costs for the same kilometres.
Recording only business trips
A logbook percentage requires total vehicle use, including private kilometres.
Using an unrepresentative logbook period
A 12-week period covering an unusual project, extended holiday or temporary change in duties may not fairly represent normal annual vehicle use.
Failing to update an old logbook
A logbook may no longer be reliable when your travel pattern, role or business circumstances change substantially.
How Travel Logs can help
Maintaining an accurate vehicle log manually can be difficult, particularly when trips occur throughout the day or multiple vehicles and drivers are involved.
Travel Logs brings trip and vehicle records together so employees, sole traders and fleet operators can maintain more organised supporting records.
Track trips consistently
Travel Logs can help you:
- Capture trips as they occur
- Separate business and private travel
- Record the purpose of each business journey
- Review business kilometres before submitting a claim
Prepare calculations and reports
You can use recorded travel to:
- Calculate business-use percentages
- Review reimbursement claims
- Prepare information for your employer
- Organise records for your bookkeeper, accountant or tax agent
Keep related records together
Travel Logs can also help organise:
- Trip information
- Vehicle information
- Expense records
- Maintenance records
Travel Logs Fleets
For organisations using Travel Logs Fleets, drivers can submit:
- Trips
- Expenses
- Maintenance records
Records relating to fleet-managed vehicles can be submitted for review through the Travel Logs web portal.
Fleet owners can then review and validate the submitted information.
Important: Digital tracking can reduce missed trips and manual calculations, but using an app does not automatically guarantee that a claim complies with ATO requirements.
Users should still:
- Review trip classifications
- Confirm the purpose of each journey
- Retain required expense evidence
- Ensure records reflect the travel that actually occurred
A practical reimbursement workflow
A consistent process can make employee reimbursements easier to review and substantiate.
1. Record the journey promptly
Capture:
- The date
- The distance
- The destination
- The business purpose
2. Classify the trip
Mark the journey as:
- Business
- Work related
- Private
3. Check eligibility
Exclude:
- Normal commuting
- Personal errands
- Other private travel
4. Apply the workplace policy
Use the reimbursement rate or expense rules set by the employer, award, agreement or workplace policy.
5. Attach supporting evidence
Include receipts when claiming actual expenses such as:
- Parking
- Tolls
- Other separately reimbursable costs
6. Submit the claim
Provide the required trip records and supporting documents within the employer's submission timeframe.
7. Review the tax treatment
Do not claim a tax deduction for amounts that have been fully reimbursed.
8. Retain your records
Keep copies of:
- Submitted claims
- Approvals
- Trip records
- Receipts
- Supporting calculations
Frequently asked questions
What is the ATO kilometre rate for 2026–27?
The cents-per-kilometre rate for eligible car expenses incurred from 1 July 2026 is 91 cents per kilometre.
The method is subject to a maximum of 5,000 eligible kilometres per car.
What rate applies to my 2025–26 tax return?
Eligible travel between 1 July 2025 and 30 June 2026 uses the 2025–26 rate of 88 cents per kilometre.
Can I claim car expenses if my employer pays me an allowance?
Potentially.
An allowance is generally assessable income, but you may separately claim a deduction when:
- You incurred eligible expenses
- The travel was genuinely work related
- You meet the relevant ATO requirements
- You have appropriate records
Your deduction is not automatically the same as the allowance.
Can I claim expenses that my employer reimbursed?
You generally cannot claim the portion of an expense that your employer fully reimbursed because you did not ultimately bear that cost.
Do I need a logbook for the cents-per-kilometre method?
A formal 12-week logbook is not required.
However, you still need records showing how you calculated the eligible kilometres.
How long does an ATO logbook remain valid?
A representative logbook can generally remain valid for five years.
You may need to complete a new logbook sooner if your vehicle use changes materially.
Is driving from home to work business travel?
Usually not.
Travel between your home and regular workplace is generally private commuting, although limited exceptions can apply.
Can a sole trader claim 100% of their car expenses?
Only when the vehicle is genuinely used entirely for eligible business purposes and the records support that position.
Where there is any private use, the expenses must be apportioned.
Keep reliable records from the first kilometre
Vehicle claims are easier to prepare when trips are recorded throughout the year rather than reconstructed at tax time.
Whether you are:
- Submitting employee reimbursement claims
- Calculating a sole trader deduction
- Managing a shared fleet
Consistent records help establish:
- Where you travelled
- How far you drove
- When the journey occurred
- Why the travel was business related
Travel Logs provides a practical way to organise those records and turn day-to-day driving activity into clearer reimbursement, accounting and tax reports.
Disclaimer: This article provides general information only and is not tax advice. Tax outcomes depend on individual circumstances. Check current ATO guidance or speak with a registered tax agent before lodging a claim.