Tax Planning
Cents-Per-Kilometre Rate, PAYG & GDP Factor Updates: What Individuals & Small Businesses Need to Know
From 1 July 2026, the cents-per-kilometre deduction rate increases, and GDP adjustment factor changes for GST and PAYG instalments will affect tax planning and cashflow.
By NomadicTax Research Team • 5-8 min read • August 15, 2026
## Key rate changes from 1 July 2026
- The **cents-per‐kilometre rate for motor vehicle expenses** will increase to **91 cents per kilometre** for the **2026-27 income year**. ([softwaredevelopers.ato.gov.au](https://softwaredevelopers.ato.gov.au/list/tax-preparation/statement-formula-rates-and-thresholds?utm_source=openai))
- The **Gross Domestic Product (GDP) adjustment factor**, used in calculating **GST instalments** and **PAYG instalments**, will be **5%** from 1 July 2026. ([softwaredevelopers.ato.gov.au](https://softwaredevelopers.ato.gov.au/list/tax-preparation/statement-formula-rates-and-thresholds?utm_source=openai))
- PAYG withholding tax tables and schedules have been updated to reflect the recent **personal income tax cuts** enacted in the **Treasury Laws Amendment (More Cost of Living Relief) Act 2025**. ([softwaredevelopers.ato.gov.au](https://softwaredevelopers.ato.gov.au/PAYGWTaxtables?utm_source=openai))
## How these affect individuals and small businesses
- **Motor vehicle deductions**: if you use the cents-per-kilometre method, your tax-deductible amount per kilometre is higher, potentially increasing diesel/maintenance considerations.
- **PAYG instalment & GST cashflow**: Higher GDP adjustment increases instalment amounts, so businesses must plan for higher quarterly payments. Underestimating instalments may lead to large liability and reduced cash reserves.
- **Withholding**: Employers need to use new withholding tables from 1 July 2026—which may affect employee take-home pay. Ensure payroll systems use updated formula schedules. ([softwaredevelopers.ato.gov.au](https://softwaredevelopers.ato.gov.au/PAYGWTaxtables?utm_source=openai))
## Practical examples
- *Sarah*, a sole trader who uses her car for work, drives 10,000 business kilometres in 2026-27. She can claim 10,000 × $0.91 = **$9,100** as deductions under the cents-per-kilometre method, up from what she may have claimed previously.
- *Small consulting firm*: Projected PAYG instalments based on GDP adjustment need recalculating. If last year’s rates with lower GDP factor were used to estimate spare cash, underestimating could lead to surprise liabilities. Planning newsletters from ATO and accounting software updates should be monitored.
## Action steps
1. Update your accounting or payroll software to include the new cents-per-kilometre rate and withholding tables.
2. For businesses paying GST or PAYG instalments, review your instalment projections according to the 5% GDP adjustment rather than past rates.
3. Review motoring logs or expense evidence to justify use of cents-per-kilometre method—keep good records.
4. Monitor your pay cycles to ensure withholding is correct per new tax tables; employees should check net pay after change.
These rate changes might seem minor, but they affect thousands of taxpayers and businesses. Early adjustments help maintain compliance and avoid unexpected liabilities.