The ATO work related car expense rate v Petrol prices

I filled my car up yesterday, it cost me $90. It used to cost me $50. The Vortex fuel I used was $2.25/litre.

To say I was underwhelmed, is well, an understatement. My car is a VW Polo, it’s not extravagant, it’s economical and fuel efficient.

Currently the ATO motor vehicle rate is $0.72/km. The ATO has increased the work-related car expense deduction to 75¢ a kilometre from 01 July 2022. This rate is set for the next year, from 1 July 2022 to 30 June 2023. With people starting to move around and travel more, I’ve got a feeling that the new rate just might not cut it.

When I got home, I ran a few numbers so I could see the effect that this could have over the next year:

5,000km x $0.75 = $3,750 (using the 2022-23 rate)

5,000km x $2.25 = $11,250

Out of pocket = $7,500

Really? If you’re using your vehicle for work related purposes, due to the low rate, you may find it beneficial to switch over to the logbook method. I know I will be. This method requires you to complete a logbook for a period of 12 consecutive weeks and log each trip for business and personal use. All tax invoices receipts relating to car expenses must be kept as well, eg rego, servicing, insurance etc.

With petrol prices estimated to hit $2.50-$3.00, the ATO rate is not reflective of the cost to fuel your car. Fuel has increased 50% since December and the new set rate with an increase of $0.03 for 2022-23 will leave taxpayers short changed.

The cents-per-kilometre method is easier for the taxpayer and the ATO, but the fixed rate is no longer on par with living costs.

The cents-per-kilometre number is also important, as employers use it to reimburse staff. If you use your vehicle for work related travel and are reimbursed, then this is the rate used unless otherwise determined by your employer.

The increase is detailed in the ATO’s Draft Income Tax Assessment – Cents per Kilometre Deduction Rate for Car Expenses Determination 2022 (LI 2022/D8).