ATO Cents Per Kilometre Rate Update – 2026–27 Income Year
The Australian Taxation Office (ATO) has released the Draft Income Tax Assessment (Cents per Kilometre Deduction Rate for Car Expenses) Determination 2026, confirming updated rates for work-related car expense deductions.
These changes are relevant for taxpayers who use the cents per kilometre method to claim motor vehicle deductions in their individual income tax returns.
Cents Per Kilometre Rate for 2026–27
For the 2026–27 income year, the ATO has set the cents per kilometre rate at:
- 91 cents per kilometre
This represents a temporary uplift of 2 cents per kilometre above the base rate of 89 cents per kilometre.
Base Rate and Future Indexation
The 91 cents per kilometre rate includes a one-off adjustment for the 2026–27 income year only.
From 1 July 2026, the underlying base rate will be:
- 89 cents per kilometre
For future income years, the cents per kilometre rate will be updated annually based on indexation applied to this base rate.
How the Cents Per Kilometre Method Works
The cents per kilometre method allows individuals to claim a deduction for work-related car use using a simple formula:
Work-related kilometres × ATO cents per kilometre rate
This rate is designed to cover all typical vehicle running costs, including:
- Fuel and oil
- Registration
- Insurance
- Repairs and servicing
- Tyres
- Depreciation
If you use this method, you cannot claim additional car expenses separately.
Key Limitation – 5,000 Kilometres Per Vehicle
The cents per kilometre method is capped at 5,000 business kilometres per car per income year.
Based on the 2026–27 rate, the maximum deduction per vehicle is:
5,000 km × 91 cents = $4,550
Record Keeping Requirements
While a logbook is not required, taxpayers must be able to demonstrate how business kilometres were reasonably calculated.
Supporting records may include:
- Work diaries
- Appointment schedules
- Client visit logs
- Travel tracking applications
The ATO may request evidence to substantiate claims, so accurate records are important.
Is the Cents Per Kilometre Method Right for You?
This method is generally most suitable for individuals who:
- Travel less than 5,000 business kilometres per year
- Prefer a simple, fixed-rate deduction method
- Do not wish to maintain detailed vehicle expense records
Taxpayers with higher business travel or significant motor vehicle costs may benefit from considering the logbook method instead.
Need Advice on Car Expense Deductions?
Understanding which car expense method to use can make a meaningful difference to your tax outcome.
If you need assistance with work-related car deductions or general tax advice, contact Gavin Ma & Co for professional support.
Disclaimer
This article is provided for general information purposes only and is based on draft ATO legislation at the time of publication. Final legislation or determinations may change. You should seek professional advice tailored to your circumstances before acting on any information contained in this article.