ATO Increases the Cents per Kilometre Rate to 91 Cents for the 2026–27 Income Year
- stevenzhou91
- 4 hours ago
- 5 min read
The Australian Taxation Office (ATO) has formally issued the Income Tax Assessment (Cents per Kilometre Deduction Rate for Car Expenses) Determination 2026.
From 1 July 2026, the cents per kilometre rate for eligible work-related car expenses will increase from 88 cents to 91 cents per kilometre. The new rate applies to deductions claimed for the 2026–27 income year.
For individual taxpayers who use their own car for work-related purposes and calculate their deduction under the cents per kilometre method, the increase may result in a higher deductible amount, provided the relevant eligibility and substantiation requirements are satisfied.
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1. Background
Income tax is imposed by the Australian Government on the taxable income of individuals and entities. For individual taxpayers, assessable income may include salary and wages, business income, investment income and other amounts required to be included under Australian tax law.
Broadly, expenses incurred in gaining or producing assessable income may be deductible, subject to the specific requirements, limitations and exclusions contained in the income tax legislation.
Eligible expenses arising from the work-related use of a privately owned or leased car may therefore be deductible in calculating an individual taxpayer’s taxable income.
2. Who Does the New Rate Apply To?
The increased rate applies to individual taxpayers who satisfy all of the following conditions:
They use a car that they own or lease for work-related purposes.
The kilometres travelled qualify as work-related travel under the ATO’s rules.
They elect to use the cents per kilometre method to calculate their car expense deduction for the 2026–27 income year.
Examples of travel that may qualify as work-related include:
travelling between separate workplaces;
travelling to visit clients, customers or suppliers in the course of performing employment duties;
travelling from a usual workplace to an alternative workplace for work purposes; and
transporting bulky tools or equipment where the relevant ATO conditions are satisfied.
Ordinary travel between a taxpayer’s home and their regular workplace is generally regarded as private commuting and is therefore not deductible.
Limited exceptions may apply, including where the taxpayer performs genuinely itinerant work or is required to transport bulky tools or equipment that are essential to their employment duties and cannot reasonably be stored securely at the workplace.
3. Overview of the Cents per Kilometre Method
Under Division 28 of the Income Tax Assessment Act 1997, an eligible individual taxpayer may generally choose between two methods when calculating a deduction for work-related car expenses:
the cents per kilometre method; or
the logbook method.
Under the cents per kilometre method, the deduction is calculated as follows:
Deductible amount = Eligible work-related kilometres × Applicable ATO rate per kilometre
The following requirements and limitations apply:
A maximum of 5,000 work-related kilometres per car, per income year may be claimed under this method.
The taxpayer is not required to retain receipts for each individual car expense included in the rate.
The taxpayer must nevertheless be able to demonstrate how the number of work-related kilometres claimed was calculated.
Supporting evidence may include diary entries, appointment records, work schedules, travel records, records of client visits or a reasonable calculation based on a consistent travel pattern.
The cents per kilometre rate is intended to incorporate the principal costs of owning and operating the car. A taxpayer cannot separately claim additional deductions for expenses already covered by the rate, such as fuel, registration, insurance, servicing and depreciation for the same car.
4. What Has Changed?
The latest determination changes only the applicable cents per kilometre rate. The principal eligibility requirements and the 5,000-kilometre limit remain unchanged.
According to the ATO’s explanation, the 91-cent rate for the 2026–27 income year consists of:
an indexed base rate of 89 cents, representing a one-cent increase from the 88-cent rate applying in 2025–26; and
a temporary one-off uplift of 2 cents for the 2026–27 income year.
The additional two-cent uplift is temporary and applies only to the 2026–27 income year.
For future indexation purposes, the relevant base will remain 89 cents per kilometre, rather than 91 cents per kilometre. Accordingly, taxpayers should not assume that the full 91-cent rate will automatically continue into subsequent income years.
5. Impact on the Available Deduction
The following example illustrates the effect of the increased rate for a taxpayer claiming the maximum 5,000 work-related kilometres under the cents per kilometre method.
A taxpayer claiming the maximum number of eligible kilometres may therefore receive an additional $150 deduction for the 2026–27 income year compared with the preceding year.
It is important to distinguish between a tax deduction and a direct tax saving. The additional $150 reduces the taxpayer’s taxable income; it does not result in an automatic $150 reduction in tax payable. The actual tax benefit will depend on the taxpayer’s applicable marginal tax rate and individual circumstances.
6. Practical Considerations for Taxpayers
Individual taxpayers who use their own car for work-related purposes should consider the following practical steps:
Review the nature of the travel
Confirm that the kilometres claimed relate to eligible work-related travel rather than private travel or ordinary home-to-work commuting.
Compare the available calculation methods
Consider whether the cents per kilometre method or the logbook method produces a more appropriate outcome, taking into account actual work-related travel, total vehicle expenses and record-keeping obligations.
Maintain adequate supporting records
Retain diary entries, appointment schedules, travel records, client visit details and other documents that demonstrate how the work-related kilometres were calculated.
Apply the kilometre limit separately to each car
Where more than one eligible car is used for work-related purposes, the 5,000-kilometre limit applies separately to each car. The taxpayer must nevertheless be able to substantiate the work-related kilometres claimed for each vehicle.
Apply the correct rate to the relevant income year
The 91-cent rate applies only to eligible travel during the 2026–27 income year, commencing on 1 July 2026. Claims relating to the 2025–26 income year remain subject to the 88-cent rate.
Conclusion
The increase to 91 cents per kilometre provides a modest additional deduction for individual taxpayers who regularly use their own cars for eligible work-related travel.
However, the increased rate does not alter the underlying eligibility requirements. Taxpayers must still distinguish work-related travel from private travel, comply with the 5,000-kilometre limit and retain sufficient evidence to support the basis of their claim.
Taxpayers preparing their 2026–27 individual income tax returns should ensure that they apply the updated rate and assess whether the cents per kilometre method remains the most appropriate method for their circumstances.
Source of information:
Disclaimer
This article reflects publicly available information regarding the exposure of draft legislation as at the date of publication and is general in nature. It does not constitute tax, financial, or legal advice and should not be relied upon without obtaining professional advice tailored to your specific circumstances. To discuss how these proposed changes may affect you or your business, please contact our advisory team at Wis Australia.
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