Hey there, solo entrepreneurs (sole traders)! If you’ve ever been puzzled about how to claim motor vehicle expenses, you’re in good company. Today, we’re diving into the nitty-gritty of the two most popular methods: cents-per-km and logbook. Let’s get rolling!

Cents-Per-Km Method

How it Works

With this hassle-free method, the Australian Tax Office (ATO) lets you claim up to 5,000 business kilometres per car at a fixed rate of 68 cents per kilometre. No need for a mountain of receipts, but you should be prepared to show how you estimated your distance.

Record-Keeping

The great thing about cents-per-km is its low-key approach to paperwork. All you need is some basis, like diary entries, for how you’ve worked out your business-related kilometres.

Logbook Method

How it Works

Now, if you do a whole lot of business related driving or have expensive running costs for the car, the logbook method is your go-to. Initially, you’ll need to keep a logbook for a continuous 12-week period. Once that’s done, you can use the business-related use percentage calculated from this logbook to claim that proportion of all your car expenses.

What Can You Claim?

After you’ve got your business use percentage, you can apply it to various car expenses, including:

• Fuel and oil
• Maintenance and repairs
• Insurance
• Loan interest
• Depreciation

Record-Keeping

Your logbook needs to be comprehensive, capturing:

• Dates of travel
• Odometer readings at the start and end
• The purpose of the trip
• Total kilometres covered

If you have more than one car, a separate logbook must be kept for each vehicle for a continuous 12-week period and
must document:

• When the log book period begins and ends.
• The car’s odometer readings at the start and end of the logbook period.
• The total number of kilometres the car travelled during the logbook period.
• The number of kilometres travelled for each journey.
• The odometer readings at the start and end of each subsequent income year of your
  logbook is valid for.
• The business-use percentage for the logbook period based on the business use of the
  vehicle.
• The make, model, engine capacity and registration number of the car.

A few tips from us:

• Logbook entries must be made as soon as possible after the trip. Simply stating ‘business trip’ doesn’t cut it as the ATO needs more detailed information about the journey to establish whether the purpose of the trip was for business or private purposes. The ATO will regard a trip as business-related only if you attach a specific purpose to it.
• If the 12-week period is not representative of the whole year, you may have to adjust
  your business percentage (i.e. upward or downward). If your pattern has changed
  substantially during the year, the logbook may no longer be valid, and you may need to
  keep a new logbook.

The ATO sets out specific logbook requirements as well as providing more of the nitty-gritty detail, we recommend you check their info page out here.

How Often Should You Update the Logbook?

The good news? Your logbook is valid for five years. However, if there’s a significant change in your car usage, it’s a good idea to keep a new logbook.

When is Logbook Better?

The logbook method may be better (i.e. gets you a better tax deduction) in the following situations:

• Travel more than 5,000 km for work
• Have a >50% business use %
• Have purchased a brand new car (meaning you’ll get more depreciation)
• Car has expensive running costs

You might be wondering, “What if I don’t travel 5,000 km? Is logbook still for me?” If your car has expensive running costs, using the logbook method could still potentially offer you a larger deduction, even if you travel less than 5,000 km annually.

Sole Trader Insights

For sole traders, the logbook method demands a bit more. Alongside recording your business use percentage, you’ll need to keep specific details about each car expense to claim it.

If you use an accounting system and a bookkeeper, you can just send your car expenses over to them.

The Bottom Line

Both methods have their perks and pitfalls. If you’re an occasional work-related traveller, cents-per-km is less fuss. But if you’ve got a pricey ride or clock in significant mileage, the logbook method could be more beneficial.

Hope this brings some clarity to the sometimes-confusing world of motor vehicle expenses! Got more questions? Don’t hesitate to get in touch.

We hope you’re enjoying our blog, just a note though. The information provided here is intended for general informational and educational purposes only. While we aim for accuracy, we can’t guarantee that this content will apply to your specific situation—every business owner’s circumstances are unique.

This blog is not a substitute for personalized advice from a qualified accountant, tax advisor, or any other professional. If you have questions specific to your individual circumstances, we strongly recommend consulting a professional for tailored advice.