Claiming vehicle expenses can be a valuable tax deduction for eligible Australian taxpayers, but car-related claims can also require significant supporting evidence if the ATO reviews your tax return.

In this video, Latitude Accountants CEO John Saade examined a real redacted ATO audit letter and explained the types of evidence the ATO can request when vehicle expenses are questioned. The example highlighted an important point: claiming that you use your car for work is not enough. You need records that demonstrate how and why the vehicle was used for income-earning activities.

Whether you claim fuel, servicing, registration, or other eligible vehicle costs, keeping accurate records throughout the year can make it easier to substantiate your deduction if the ATO asks questions.

Why Might the ATO Review Your Car Expenses?

The ATO can review tax returns where deductions appear unusual or require further verification.

In the example discussed by John Saade, the taxpayer had claimed significantly higher work-related expenses than the average for their occupation. While a high deduction does not automatically mean a taxpayer has done anything wrong, unusually large claims can attract attention.

Car expenses can require particular scrutiny because taxpayers need to demonstrate both:

• That they actually own or use the vehicle being claimed.
• How much of the vehicle’s use relates to earning income.

The amount claimed must therefore be supported by appropriate records and a reasonable calculation.

What Evidence Does the ATO Look For?

If your vehicle expenses are reviewed, the ATO may ask for different types of documentation depending on the nature of your claim and the method used to calculate it.

Here are some of the key records you should understand.

1. Proof That You Have the Vehicle

One of the most basic requirements is being able to demonstrate that the vehicle you are claiming expenses for actually exists and is available to you.

Depending on your circumstances, supporting records may include:

• Vehicle registration documentation
• Lease documents
• Purchase documentation
• Other records establishing your connection to the vehicle

As John Saade pointed out, it would be difficult to substantiate a vehicle deduction if you cannot demonstrate that you even had the vehicle.

This is the starting point before considering how much of its use was work-related.

2. Employer Confirmation

If your claim involves using your own vehicle for work, an employer confirmation may be important evidence.

An ATO audit may request a letter from your employer confirming:

• You were required to use your own vehicle for work.
• How the vehicle was required to be used.
• Relevant details about the person providing the confirmation.
• Any relevant allowances or reimbursements.

This provides independent evidence supporting the work-related purpose of the vehicle use.

Simply telling the ATO that you used your car for work may not be sufficient to substantiate the claim.

3. A Valid Car Logbook

If you use the logbook method to calculate your work-related car expenses, maintaining the required logbook records is particularly important.

Your logbook should help establish the pattern of your vehicle use and identify the purpose of individual journeys.

Records can include:

• Opening odometer reading
• Closing odometer reading
• Date of each journey
• Purpose of each journey
• Distance travelled
• Total kilometres travelled

The information is used to establish the work-related percentage of your vehicle use.

If you claim that a significant percentage of your vehicle expenses relates to work, your records should support that percentage.

4. Odometer Readings

Odometer records provide an important reference point when calculating vehicle use.

Keep records of your vehicle’s opening and closing odometer readings for the relevant income year, together with your logbook information where required.

These readings can help demonstrate the total distance travelled and provide context for the number of kilometres claimed as work-related.

Without reliable mileage information, it can be difficult to demonstrate how your work-use percentage was calculated.

5. Fuel Receipts

Fuel is one of the most obvious costs associated with using a vehicle, but you still need appropriate evidence to support the expense.

Keep your fuel receipts and make sure they clearly identify the purchase.

A bank statement showing a payment at a petrol station may not provide enough information about what was purchased. As John Saade explained in the video, a petrol station may also contain other retail items, so a transaction on its own does not necessarily establish that the payment was for fuel.

Where possible, retain the detailed receipt.

6. Servicing and Repair Records

Vehicle-related expenses can extend beyond fuel.

Depending on the method and circumstances of your claim, relevant records may include documentation for:

• Servicing
• Repairs
• Maintenance
• Registration
• Insurance
• Other eligible vehicle costs

Keep invoices and receipts for these expenses so that you can demonstrate what you paid and support the calculations used in your tax return.

7. Lease or Purchase Documents

If your vehicle is leased or otherwise financed, retain the relevant documentation.

An ATO review may request copies of lease documents or other records relating to the vehicle.

These documents can help establish details about the vehicle and the expenses associated with it.

Keeping them with your other tax records means you do not have to search for them later if questions arise.

8. Records Supporting Your Work-Related Percentage

One of the most important parts of a vehicle deduction is determining what portion relates to work.

For example, if you claim that 60% of your vehicle use is work-related, you need records supporting how you arrived at that figure.

Depending on your circumstances, this can involve:

• Logbook records
• Odometer readings
• Journey details
• Work-related travel records
• Calculations showing the work-use percentage

The higher the percentage claimed, the more important it is that your evidence supports the calculation.

What If You Carry Bulky Tools or Equipment?

Some taxpayers may have work-related reasons for transporting bulky equipment in their vehicle.

If this forms part of your claim, you may need to provide information demonstrating why the equipment is genuinely bulky and why transporting it is necessary.

Relevant information could include:

• A list of the equipment
• The size of the items
• The weight of the equipment
• How the equipment is transported
• Details of available secure storage
• Why the equipment needs to be transported for work

As John Saade highlighted, simply describing a laptop, tripod or camera as “bulky equipment” does not necessarily establish that it meets the relevant requirements.

The evidence needs to support the actual circumstances of the claim.

What If Your Employer Reimbursed Your Vehicle Expenses?

You should also keep track of whether your employer provided reimbursements or allowances.

An expense that has been reimbursed may affect whether you can claim it as a deduction.

Keep relevant records of:

• Employer reimbursements
• Allowances
• Payslips
• Employer correspondence
• Vehicle-related expenses you personally paid

This can help you and your accountant determine the correct amount to include in your tax return.

How to Prepare for an ATO Car Expense Audit

The best time to prepare for an audit is before you receive an audit letter.

Create a system for keeping your vehicle records throughout the year. Rather than trying to reconstruct months of driving and expenses later, record information as you go.

Your vehicle record-keeping system should include:

• A current logbook where required
• Odometer readings
• Fuel receipts
• Vehicle invoices
• Servicing and repair receipts
• Registration records
• Lease documentation where applicable
• Records of work-related journeys
• Employer confirmation where relevant
• Calculations supporting your work-use percentage

Digital record-keeping tools can also make it easier to organise receipts and track vehicle use.

What Should You Do If the ATO Audits Your Car Expenses?

If the ATO sends you an audit or review letter, do not ignore it.

First, carefully identify exactly what the ATO is asking you to substantiate. Review the relevant tax return and compare your claims against the records you have kept.

You should also pay close attention to the response deadline included in the ATO correspondence.

If you are unsure about your position, consider speaking with an experienced accountant before responding. An accountant can help you understand the request, review your supporting evidence, and determine how your vehicle claims were calculated.

Most importantly, do not assume that having a receipt automatically proves that an expense is deductible. You may also need to demonstrate the work-related connection and how the deductible portion was calculated.

Frequently Asked Questions About ATO Car Expense Audits

What documents do I need for a car expense audit?

Depending on your circumstances, you may need vehicle registration records, lease documents, receipts, logbooks, odometer readings, fuel receipts, servicing records, employer confirmation, and calculations supporting your work-related percentage.

Does the ATO require a logbook for car expenses?

The requirements depend on the method used to calculate your vehicle deduction. If you use the logbook method, maintaining the appropriate logbook and supporting records is essential.

Can I claim fuel expenses without receipts?

You should retain appropriate records supporting your vehicle expenses. A bank statement alone may not provide enough detail to establish exactly what was purchased, so keeping detailed receipts is important.

Can I claim my car if my employer requires me to use it for work?

You may be able to claim eligible vehicle expenses where the relevant requirements are met. Evidence demonstrating your work-related use and how the deduction was calculated is important.

What happens if I cannot prove my car expenses?

If you cannot substantiate a claim during an ATO review, the deduction may be reduced or disallowed. Depending on the circumstances, additional tax, penalties or interest may also apply.

Get Help With Your Tax and Vehicle Deductions

Vehicle deductions can involve more than simply keeping a few petrol receipts. You need to understand the relevant requirements, keep appropriate records and be able to explain how your work-related portion was calculated.

Latitude Accountants helps individuals and businesses with taxation, accounting and proactive financial advice. If you need assistance with your vehicle deductions, tax return or an ATO review, speak with the team.

Latitude Accountants

📍 Sydney Olympic Park | Marrickville | Melbourne | Loxton
📞 1300 706 597
📧 info@latitudeaccountants.com.au

Disclaimer

This article provides general information only and does not constitute financial, legal, tax or business advice. Tax rules and deduction requirements can vary depending on individual circumstances. Speak with a qualified accountant or tax adviser for advice relevant to your situation.