For the 2025–26 income year Australians who own or lease a car and drive it for work have just two ways to claim a deduction in their 2026 tax return. One way is the cents per kilometre method with a fixed 88 cents rate and a strict 5 000 kilometre ceiling per car. The other way is the logbook method which allows a percentage of actual running costs without any kilometre cap. Choosing the right method can add hundreds or even thousands of dollars to a refund and it also affects the records that must be kept for five years. This guide sets out how each method works right now, why one or the other might save more tax, and how to lodge the claim in myTax 2026 while staying inside the rules of Division 28 of the Income Tax Assessment Act 1997 and the latest ATO guidance.
Quick comparison of the two methods in 2026
| Feature | Cents per kilometre | Logbook method |
|---|---|---|
| Eligible taxpayers | Employees, sole traders and partnerships that include an individual who own or lease a car and pay the running costs [4] | Same group of taxpayers as cents per kilometre [5] |
| Basis of claim | Fixed rate of 88 cents for each work related kilometre for 2025–26 [4][5] | Work related percentage of actual costs including fuel insurance registration repairs interest and depreciation [5] |
| Kilometre limit | Maximum of 5 000 work kilometres per car per income year [4][5] | No kilometre limit once a valid logbook sets the business use percentage [5] |
| Expenses covered | Rate already covers every running cost so no extra deduction for fuel or repairs [4] | Deduction calculated from receipts and depreciation schedule then multiplied by business use percentage [5] |
| Records required | A reasonable contemporaneous note of the kilometres such as a diary myDeductions or travel spreadsheet plus proof of ownership [4] | A 12 week logbook with odometer start and end readings receipts for all costs annual odometer reading and retention of those documents for five years [5] |
| Typical best fit | Drivers who travel 5 000 work kilometres or less or have modest car costs or find paperwork difficult | Drivers who exceed 5 000 work kilometres or run an expensive or heavily used car so that actual costs far exceed the 88 cents rate cap |
The table shows the headline rules but real savings depend on distance driven cost of the vehicle and willingness to maintain records.
How the cents per kilometre method works in 2025–26
The cents per kilometre method is the simpler of the two approaches. The ATO has determined that 88 cents fairly represents fuel maintenance tyres registration insurance repairs and decline in value for an average privately owned car in the 2025–26 income year [4]. The taxpayer multiplies their work related kilometres by 0.88 and enters that total at the work related car expense label of myTax. No receipts for fuel or servicing are needed because the rate has already rolled those amounts in. The only evidence required is a reasonable explanation of how the distance figure was reached. A diary for a representative four week period extrapolated across the year a log created in the ATO myDeductions app or an electronic tracker can all satisfy this test if they show trip dates destinations and purpose.
ATO guidance caps the claim at 5 000 kilometres for each car. If the same taxpayer owns two cars both used for income each car has its own 5 000 kilometre ceiling. Joint owners can each claim up to the cap for their own work use. The rule applies per income year so a driver who exceeded 5 000 work kilometres in 2024–25 can still use cents per kilometre in 2025–26 so long as the current year kilometres remain at or below the cap.
Ownership or lease of the vehicle remains critical. An employee with a fully maintained novated lease that the employer pays for cannot use cents per kilometre because they have not incurred the expense. Likewise an Uber driver who rents a vehicle cannot rely on the car method and must instead use the actual cost method for a non-car vehicle or claim the rental fee.
Here is an example calculation for the current year. Kim is a marketing representative who drives to clients three days a week. Her odometer tracking app shows 2 514 work kilometres between 1 July 2025 and 30 June 2026. She owns the car outright and her employer does not reimburse any costs. Kim’s deduction is 2 514 multiplied by 0.88 which equals 2 212 dollars. She keeps the odometer report export from her phone and saves it with her tax records.
How the logbook method works in 2025–26
The logbook method replaces the fixed rate with a calculation that reflects the individual car and its actual running expenses. The cornerstone is a 12 week logbook that captures every journey during that continuous period. Each entry must record the date destination purpose opening odometer reading closing odometer reading and kilometres for the trip. At the end of the 12 weeks the driver totals the business kilometres and the overall kilometres then divides the two figures to arrive at a business use percentage.
That percentage remains valid for up to five years provided the pattern of travel does not change materially. Even so the driver must note the odometer reading at 30 June each year and retain receipts or other documentary evidence for all deductible costs. Those costs include fuel oil parking tolls repairs maintenance cleaning insurance registration roadside assistance loan interest or lease payments and the decline in value of the car calculated under ATO depreciation rules. If the car cost more than the luxury car limit the depreciation claim is restricted accordingly.
Suppose Amal operates a plumbing business as a sole trader. She buys a ute for 55 000 dollars in August 2025. Over 12 weeks she travels 6 000 kilometres in total and 4 800 of those relate directly to client jobs or collecting supplies. Her business use percentage is therefore 80. During the full income year her fuel adds up to 7 600 dollars repairs to 1 200 dollars insurance and registration to 1 800 dollars and the written down depreciation for the partial year is 4 000 dollars. Total running costs equal 14 600 dollars. Her deduction is 80 percent of that amount which is 11 680 dollars. Had Amal used the cents per kilometre method the claim would have been capped at 5 000 times 0.88 which is 4 400 dollars. In her case the logbook method delivers an extra deduction of 7 280 dollars.
Which method gives the bigger deduction
The larger deduction depends on kilometres travelled the cost profile of the car and the time available to manage paperwork. For a cheap to run hatchback that travels only 3 000 work kilometres the cents per kilometre claim of 2 640 dollars is often higher than an 80 percent share of limited fuel and servicing costs. Conversely a large four wheel drive that clocks 25 000 business kilometres and drinks diesel may have fuel bills alone of 6 500 dollars before considering tyres and depreciation. If the business use is 70 percent and the total costs reach 12 000 dollars the logbook deduction becomes 8 400 dollars which nearly doubles the 4 400 dollar ceiling of the simple method.
A practical rule draws a dividing line at about 5 000 work kilometres. Drivers under that threshold often gain little by tracking every receipt. Drivers who exceed it regularly or who operate a high value vehicle usually benefit from the logbook even after factoring in the administrative burden. The current 88 cent rate is generous compared with earlier years yet rising fuel and insurance prices may still push the break even point lower for many tradespeople and professionals who live on the road.
Multi car use and switching methods
Some taxpayers use more than one car for work in the same year. The ATO treats each vehicle separately. A consultant might replace her old sedan with a new electric hatchback halfway through the year. She can claim up to 5 000 kilometres for the old car under cents per kilometre then keep a fresh 12 week logbook for the new car and claim a percentage of its running costs under the logbook method. Alternatively she could run two cars at the same time and claim 5 000 kilometres for each using cents per kilometre. The ATO Community forum confirmed that the cap is per car not per taxpayer [2].
Switching between methods is also permitted from one income year to the next. A driver who kept a logbook in 2024–25 does not need to repeat the exercise in 2025–26 if they decide the simple method now delivers a similar or better outcome. They only need to store the old logbook on file in case the ATO asks about prior years. Conversely a driver who previously stayed under the cap may start a new 12 week logbook in August 2025 if work travel expands.
How to claim in myTax 2026
The online myTax form has a dedicated section titled Work related car expenses. The taxpayer selects Add related car expense and identifies whether the claim will use the cents per kilometre method or the logbook method. The form will not allow a mixture of both methods for the same car in the same income year. If the driver chooses cents per kilometre they type the number of work kilometres up to 5 000 and myTax multiplies by 0.88 automatically.
If the driver chooses the logbook method myTax asks for the business use percentage and prompts separate entry lines for fuel oil repairs registration insurance interest or lease payments and depreciation. The software totals the costs multiplies by the percentage and displays the deduction. Tax agents who lodge through Online services for agents follow an identical data path. The underlying sections mirror the wording of the ATO instructions for 2026 [5].
Common mistakes and ATO red flags
ATO audit projects frequently target car expense claims because the numbers are easy to cross match. The most common error is claiming more than 5 000 kilometres with cents per kilometre or claiming 5 000 kilometres when actual work travel was far lower. Another trap is adding fuel or servicing receipts on top of the 88 cent rate. The fixed rate already includes those costs so any extra amount will be disallowed.
For the logbook method the risk sits with incomplete or outdated records. A driver who uses a logbook from 2018 when their duties and travel pattern have changed materially in 2026 cannot rely on that percentage. Missing receipts or lost electronic data can also invalidate the claim because declarations in a tax return must rest on documentary evidence. Finally many taxpayers forget that ordinary commuting between home and a regular workplace is private and not deductible. The ATO data matching program compares address and workplace information to identify inflated claims.
Decision checklist for 2026
A quick self assessment can show the likely best method. If you drive well over 5 000 work kilometres your running costs are high or you are comfortable keeping a 12 week logbook then the logbook method will usually outshine the cents per kilometre cap. If your annual work travel sits below the cap your car is economical and you prefer minimal record keeping then the simple rate should suffice. Borderline cases can compare both methods on a spreadsheet using real receipts for three months to gauge which yield appears highest then select that method at year end.
FAQ
What is the cents per kilometre rate for 2025–26
The ATO rate for the 2025–26 income year remains at 88 cents for each work related kilometre [4][5].
How many kilometres can I claim using the cents per kilometre method in 2026
The maximum claimable distance is 5 000 work kilometres for each car for the income year [4][5].
What costs does the 88 cent rate include
It is designed to cover every typical car expense including fuel registration insurance servicing tyres repairs and depreciation so no separate deduction for those items is allowed when using the cents per kilometre method [4].
When is the logbook method usually better
It is often better when annual work travel exceeds 5 000 kilometres or when the vehicle has high running costs or a high business use percentage because the deduction is not capped [1][5].
How long does a car logbook need to last
A valid logbook must record a continuous 12 week period that represents normal travel and it can be applied for up to five years unless usage patterns change significantly [5].
Do I need receipts if I use the cents per kilometre method
Receipts for fuel or repairs are not required but you must maintain a diary or other record that shows how the work related kilometre figure was calculated [4].
Can I claim both methods for the same car in the same year
No. For each car in each income year you must choose either cents per kilometre or logbook not both [5].
Can I claim 5 000 kilometres for more than one car
Yes. The 5 000 kilometre ceiling applies per car so a taxpayer may claim up to the cap for each car they own or lease and use for income [2][5].
Do I need a new logbook when I buy a different car
Yes. A logbook is vehicle specific so a new car requires a new 12 week logbook before you can claim using the logbook method [2].
How do I enter car expenses in myTax 2026
Open the Work related car expenses section choose cents per kilometre or logbook then follow the prompts. myTax calculates the deductible amount based on the method chosen and the data entered [5].
Final tips and next steps
Always check that your chosen method fits your real driving pattern and that your records align with the ATO substantiation rules. Rates may change from 1 July 2026 so confirm any new figures before lodging a later return. For complex scenarios such as multiple cars mixed private and business finance arrangements or luxury vehicles consider obtaining advice from a registered tax agent who can test both methods using your actual numbers.
This article provides general information only and cannot address every personal circumstance. Consult the ATO website or a qualified professional for guidance tailored to your own situation. Keep all supporting documents for at least five years in case the ATO reviews your claim. Sound records and a clear method choice will let you maximise your deduction and protect it under audit.
