If you use your car for business, it might be a good time to dust off the calculator and keep an eye on your mileage in preparation for tax returns in coming years.
From July, Australians driving their vehicles for business will be able to claw back more money after the Australian Tax Office bumped up the cents-per-kilometre rate used to claim work-related tax deductions from 88 cents to 91 cents.
On Wednesday, the tax office released the outcome of its annual review of the cents-per-kilometre rate, pencilling in relief for some Australians who have faced higher costs at the bowser. The change applies to the 2026-27 financial year, so it will not affect the upcoming lodgement of tax returns, which covers the 2025-26 financial year.
The cents-per-kilometre rate (which has remained steady at 88 cents for the past two years) is used by sole traders or partnerships (where at least one partner is an individual) claiming for a car, with a maximum claimable distance of 5000 kilometres travelled for business per car, per year.
The cents-per-kilometre rate accounts for all expenses incurred in running a vehicle, including registration, fuel, servicing and insurance, as well as depreciation.
Using the cents-per-kilometre method doesn’t require written evidence about car expenses incurred, but taxpayers looking to claim a deduction need to keep a record of how the kilometres travelled for business have been calculated.
The rate is reviewed every year and updated, if needed, to reflect the annual average operating costs for cars. In particular, it draws on the annual movement of the “private motoring subgroup”, within the transport group, of the consumer price index.
Some years, there is also a one-off uplift, applied at the commissioner’s discretion, to account for increases in operating costs that have happened but may not be fully accounted for in the “base rate” because of the timing of events and lags when measuring some factors and translating them into data.
For example, for the coming financial year, there is a one-off uplift (2 cents out of the 3 cent increase) to account for global conditions affecting fuel prices during the March quarter of 2026 and price uncertainty in the period ahead.
In an explanatory statement accompanying the latest update to the cents-per-kilometre rate, the tax office said the commissioner’s discretion had been exercised because of “both the sharp nature and the timing (late in the fourth quarter) of the fuel price shock, which combined means the base rate does not reflect current operating costs for cars.”
For future years, the annual increase in line with inflation will be applied to the base cents-per-kilometre rate of 89 cents, rather than the 91 cents rate which will be in effect for the 2026-27 financial year.
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Millie Muroi is the economics writer at The Sydney Morning Herald and The Age. She was formerly an economics correspondent based in Canberra’s Press Gallery and the banking writer based in Sydney.Connect via X or email.
