Car expense substantiation methods simplified

The government has simplified the car expense deductions for individuals from 1 July 2015.

Prior to 1 July 2015, there were four methods for claiming car expenses:

  • Cents per kilometre - capped at 5,000kms
  • Logbook - unlimited kms
  • 12% of original value
  • One-third of actual expenses.

To simplify the rules, from 1 July 2015, the government has abolished the one-third of actual expenses method and 12% of original value method. The cents per kilometre method (with the existing 5,000km cap) and the logbook method (with unlimited kms) remain.

The cents per kilometre method has been simplified to use a standard rate of 66 cents per kilometre for the 2015-16 income year, rather than a rate based on the engine size of the car. The Commissioner of Taxation will set the rate for future income years.

Employers should be aware that the Tax Office set the approved pay as you go withholding rate for cents per kilometre car allowances at 66 cents per kilometre from 1 July 2015. Employers should withhold from any amount above 66 cents for all future payments of a car allowance. Failure to do so may result in the employee having a tax liability when they lodge their tax return.

Employees, who from 1 July 2015 have been paid a car allowance at a rate higher than the new approved amount, should consider whether they need to increase their withholding to avoid any tax liability at the end of the year.

Legislation and supporting material

Tax and Superannuation Laws Amendment (2015 Measures No. 5) Act 2015External Link received royal assent on 30 November 2015.

See also:

    Last modified: 17 Dec 2015QC 45123