For the 2026-27 income year the ATO's cents per kilometre rate is 91 cents, set by legislative instrument LI 2026/19, up from 88 cents the previous two years. If you use your car for work, that number, and the choice it represents, is worth understanding properly, because the method you pick decides whether your car loan interest is deductible at all.
The two methods, honestly compared
The ATO gives individuals two ways to claim work-related car expenses.
The cents per kilometre method is the simple one: multiply your work-related kilometres by 91 cents, capped at 5,000 kilometres per car per year. No receipts required, though you must be able to show how you worked out the kilometres. The catch is that the rate covers everything: fuel, registration, insurance, servicing, depreciation and interest. Nothing can be claimed on top.
The logbook method takes effort and returns precision. You keep a logbook for at least 12 continuous weeks, establishing your work-use percentage, and that logbook remains valid for five years unless your circumstances change. You then claim that percentage of your actual car costs, with receipts.
Where your car loan enters the picture
This is the detail that matters for anyone financing a vehicle: interest on a car loan is a claimable car expense, but only under the logbook method, and only at your work-use percentage. Under cents per kilometre, the interest is absorbed into the 91 cent rate and cannot be claimed separately.
Loan principal repayments and the purchase price itself are never deductible as car expenses for an employee. If a big slice of your driving is genuinely work-related and you carry a car loan, the logbook method may recover meaningfully more, which effectively lowers the real cost of the finance. Structures matter too: sole traders and businesses have wider options again, covered in our guides to the instant asset write-off and chattel mortgages.
The claims that do not fly
The rules exclude more than people expect. Driving between home and your regular workplace is not claimable except in limited circumstances, no matter how far it is or how essential the car. Cars under a novated lease sit outside both methods entirely, because the employer leases the vehicle; the tax treatment happens through the lease itself, as explained in our novated lease guide. Parking and tolls are not car expenses under either method, though they may be claimable separately as travel expenses where the trip itself qualifies.
The ATO's data-matching on car claims is mature, and the 5,000 kilometre cap on the simple method exists precisely because round-number claims at the limit attract attention. Claim what you can evidence.
The 2026-27 tax backdrop
Two other settings changed on 1 July 2026 that shape the value of any deduction. The second tax bracket rate fell from 16 to 15 per cent, so income between $18,201 and $45,000 is taxed slightly less. The brackets above it are unchanged: 30 per cent to $135,000, 37 per cent to $190,000, and 45 per cent beyond, plus the 2 per cent Medicare levy for most taxpayers.
A deduction is worth your marginal rate. For someone in the 30 per cent bracket, every properly claimed $1,000 of car expenses returns about $300 at tax time, worth having, but never a reason to spend money you would not otherwise spend.
Getting the timing right
If the logbook method might suit you, the best time to start the 12-week logbook is now, not in June. A logbook begun late in the year can still establish your percentage, but starting early gives you a representative period and five years of use from it.
And if you are buying the car first and sorting the tax later, do it in the right order: the finance structure you choose, personal loan, secured car loan, or a business structure, shapes what is claimable. Our calculators can help with the repayment side, and a conversation with your accountant before you sign, rather than after, is the cheapest tax advice you will ever get.
