Car washes, roof racks, electricity: Surprising car costs to claim on tax

As tax time fast approaches, plenty of Australians are hoping to reduce their taxable income – with a strong focus on car expenses amid a fuel crisis and cost-of-living crunch.

Knowing which of your car expenses are claimable and which aren't will save you plenty of admin work.

As a starting point, Mark Chapman, Director of Tax Communications at H&R Block says: "The rule is simple: you can only claim car expenses to the extent they are directly related to earning your income".

There are three key criteria you need to be able to satisfy in order to claim an expense:

1. You must have paid for the expense yourself (i.e. you weren't reimbursed by your workplace)
2. The expense must be directly related to earning your income
3. You must have records of the expense (i.e. receipts or a logbook)

"Just as importantly, you can only claim the work-related portion. Private use – including commuting from home to your regular workplace – is generally not deductible," Mr Chapman tells Drive.

To work out the work-related portion of a car expense, you can either keep a logbook of actual costs throughout the year, or use the more straightforward cents per kilometre method, which applies a flat rate of 88 cents per kilometre (although this could soon increase) and is capped at 5000km per car, per year.

When figuring out if your expense is work-related, Mr Chapman says: "The key theme is that purpose matters more than the item itself".

For employees and sole traders, deductible car expenses can be anything that is "incidental and relevant to producing assessable income".

Importantly, you should make sure the car itself is eligible in the first place. The Australian Taxation Office advises: "To claim car expenses you must own, lease (from a finance company) or hire a car (under a hire-purchase arrangement with the dealership).

"You can't claim running costs for a car you use under a salary sacrifice or novated lease arrangement. In this situation the car is usually leased by your employer from a financing company, and your employer typically pays for the running costs and claims deductions. You can claim additional expenses, like parking and tolls associated with your work use of the car."

If you use your car for work purposes, you can claim your regular car washes either by using the cents per kilometre or logbook method – make sure you keep your receipts regardless of which method you use.

If you have purchased a car using a car loan, keep records of the interest you have to pay and you will be able to claim the business-use portion of these costs.

Whether or not you can claim a car accessory depends entirely on its purpose – but things like roof racks or tool carriers may be deductible or depreciable if you can prove you use them for work.

This is particularly relevant for tradies, who will need to make modifications to their vehicles in order to carry their equipment and tools.

If you have to pay for parking or tolls on work trips, you can claim these on your tax return as deductions.

A work trip is typically any journey from your place of work to another site relevant to your job, and can include if you are travelling to meet a client, purchase work supplies, visit the bank or head to the post office to mail invoices. It does not include your commute.

Similarly, fuel and oil used on work trips is claimable using either the cents per kilometre method or the actual cost (logbook) method.

"If it is genuine business signage (e.g. company branding on a work vehicle), it may be deductible or depreciable. Purely cosmetic paint changes are not deductible," Mr Chapman says.

If you use electricity at your home to charge an electric car, you might be able to claim a portion of your electricity bill on your tax return.

"[Electricity is] claimable to the extent it relates to work travel," Mr Chapman says, adding that it "often requires a reasonable apportionment or usage tracking".

You can either keep receipts from public charging stations and electricity bills for at-home charging, or you can use the EV home charging rate of 4.2 cents per kilometre to estimate your home charging expenses based on odometer readings.

However, if you use this method, you can't also claim costs incurred at commercial charging stations. You can find more detail here.

Mr Chapman says an EV charger is "generally treated as a capital asset" and as such "may be depreciable if used for business purposes (especially for sole traders), but not immediately deductible in full unless concessions apply".

Registration and insurance costs are covered when claiming with the cents per kilometre method.

Alternatively, you can keep your bills and receipts and claim using the logbook method.

Similarly, repairs and servicing are considered when using the cents per kilometre method, but you can also choose to claim them individually, as long as you keep adequate records.

The rules for claiming the depreciation – or decline in value – of your vehicle can change year to year, but the current limitations are:

• Only available under the logbook method (not cents per km).
• You can only claim the work-related percentage of the car’s value.
• There is a car cost limit – for 2024–25 and 2025–26, this is $69,674, even if the car costs more.

"For small businesses, simplified depreciation or instant asset write-off rules may also apply, depending on turnover and current thresholds," Mr Chapman says.

As for the car expenses you are unable to claim in your tax return, Mr Chapman explains: "A useful rule of thumb is that if the expense would exist regardless of your job, it’s probably private".

Here are some of the expenses the Australian Taxation Office aren't likely to consider deductible:

"The ATO focuses heavily on the connection between the expense and income generation. For example, driving between job sites is deductible but driving from home to the office is usually not," Mr Chapman says.

With that in mind, any costs incurred during your journey to work are regarded as personal and private expenses.

Personalised plates are "generally not deductible," says Mr Chapman.

"The ATO is likely to view these as private or aesthetic, even if they incidentally promote a business. [It's] difficult to demonstrate a direct income-producing nexus," he adds.

Unfortunately, anything that could be deemed as a "comfort item", like a sun shade or car cushion, is usually regarded as "private in nature", Mr Chapman says.

Things such as tinted windows, raised or lowered suspension, or aftermarket wheels or tyres are typically seen as modifications for personal preference, safety or aesthetics.

As such, Mr Chapman says, "they may be deductible only where there is a clear business necessity (which is rare)".

Unfortunately, professional nannies and babysitters might struggle to write off the cost of child seats in their tax return.

Despite being used 'for work', these are typically considered private or domestic expenses. The ATO generally does not allow deductions for items relating to the care of children, even in employment contexts.

Susannah Guthrie has been a journalist for over a decade, covering everything from world news to fashion, entertainment, health and now cars. Having previously worked across titles like The New Daily, Elle, Harper's Bazaar, People Magazine and Cosmopolitan, Susannah now relishes testing family cars with the help of her husband and three-year-old son.

Read more about Susannah Guthrie