Understanding the Updated Car Deduction Rate
From 1 July 2026, the ATO’s cents-per-kilometre method rate has increased from 89 cents to 91 cents per kilometre for work-related car travel. This includes a temporary uplift of 2¢ for the 2026-27 income year. (softwaredevelopers.ato.gov.au)
Who Can Use This Method?
- Employees and contractors who use their personal car for work duties (excluding commuting) may elect to use this method.
- The rate applies only if you can reasonably estimate the kilometres travelled and have evidence such as logbooks or diary entries. If you cannot, you may need to use actual cost method.
Actionable Tips for Claiming Car Deductions
- Maintain a travel diary or logbook over a representative period (12 weeks recommended) to support your claims.
- Exclude non-eligible travel, such as travel between home and work, or private trips.
- If using the cents-per-kilometre method, ensure you don’t claim actual costs (fuel, maintenance, insurance etc.) separately—only one method may be used for a given car.
Example Scenario
Sarah is a consultant who drives 15,000 km for client visits and work-related tasks in 2026-27. She elects cents-per-kilometre method:
Deduction = 15,000 km × $0.91 = $13,650
If Sarah instead tried using actual cost and couldn’t fully support her costs, she risks audit adjustments.
Risks & Common Errors
| Error | Why It’s Problematic |
|---|---|
| Mixing methods | Using both actual costs and cents method leads to over-claiming or inconsistency. |
| Poor record keeping | Insufficient evidence causes claims to be disallowed. |
| Including disallowed kilometres | Commuting (home-work) or private use are not eligible. |
Final Thoughts
The uplift to 91¢/km offers a great opportunity for those with significant work-related car travel—especially small businesses and contractors. Get into the habit of systematic records, choose the method that best fits your situation, and review your claim before lodgment. If in doubt, consult a tax professional.
Category: Tax Planning
Tax Home: Australia
Author: NomadicTax Research Team
ReadTime: 5-8 min