Key Highlights

  • The 2026–27 cents-per-kilometre rate increases to 91 cents from 88 cents.
  • Taxpayers lodging 2025–26 returns must continue using 88 cents per kilometre.
  • The 5,000-kilometre cap lifts the maximum calculated claim to $4,550 in 2026–27.
  • Eligible car expenses reduce the proposed $1,000 standard deduction rather than adding to it.

A higher car expense deduction is on the way, but timing matters. Australians preparing their 2025–26 tax returns must still calculate eligible work-related driving at 88 cents per kilometre. The newly determined 91-cent rate applies to travel in the 2026–27 income year, with claims generally appearing in returns lodged from July 2027. Mixing up the two rates could distort a claim at a time when the 31 October 2026 self-lodgment deadline is approaching.

What Drove the Increase

The Income Tax Assessment (Cents per Kilometre Deduction Rate for Car Expenses) Determination 2026 took effect on 1 July 2026. It combines an indexed base rate of 89 cents with a temporary two-cent adjustment reflecting fuel-price conditions during the March 2026 quarter. That extra uplift applies only to 2026–27. Future indexation may start from the 89-cent base rather than the full 91 cents, so the next annual rate is not guaranteed to increase.

The Dollar Difference for Drivers

The cents-per-kilometre method allows up to 5,000 business kilometres per car. At the ceiling, the calculated deduction rises from $4,400 for 2025–26 to $4,550 for 2026–27, a $150 difference. For 3,000 eligible kilometres, the amount increases from $2,640 to $2,730. These figures describe deductions, not automatic tax refunds; any tax benefit depends on the taxpayer’s circumstances. The rate already covers fuel, maintenance, registration, insurance and depreciation, so those expenses cannot be added separately under this method.

How the $1,000 Deduction Fits In

A separate change for 2026–27 introduces a $1,000 standard deduction for work-related expenses. Under the ATO’s published description, eligible car and transport claims reduce that allowance rather than sit on top of it. For example, 500 qualifying kilometres would produce a $455 car claim at 91 cents; the claim would count toward the standard amount, not create a combined $1,455 deduction. Detailed ATO guidance remains in draft form, with consultation closing on 9 October 2026. Taxpayers with larger eligible expenses may find itemised claims more relevant.

Records Still Matter

The increased rate does not remove recordkeeping obligations. Claimants must be able to explain how business kilometres were calculated, even though individual running-cost receipts are not required under this method. Ordinary trips between home and a regular workplace generally remain private. Automatically claiming 5,000 kilometres, adding depreciation separately or using conflicting methods for the same car can create errors. Drivers should track eligible trips now and watch for final guidance on the standard deduction before preparing their 2026–27 returns.