The 91-Cent Gap

The Australian Taxation Office will let you claim 91 cents for every business kilometre you drive in 2026-27. It sounds generous. It is the highest that rate has ever been.

It is also capped at 5,000 kilometres, which means the most anyone can claim under that method is $4,550 a year, no matter how far they actually drive.

Meanwhile the Australian Automobile Association's June quarter 2026 data puts the cost of running one car in a typical Australian household at $11,651 a year, and $13,666 in Sydney.

This report sets out both sides of that gap, using only figures published by the ATO and the AAA, and shows the exact point at which the method most sole traders default to starts costing them money.

TL;DR: the headline numbers

• The cents per kilometre rate for 2026-27 is 91 cents, up from 88 cents.
• That 91 cents is not a permanent rate. It is an 89 cent base plus a temporary one-off uplift of 2 cents that applies to 2026-27 only.
• The method is capped at 5,000 business kilometres per car per year, so the maximum claim is $4,550.
• You only ever receive 91 cents per kilometre at exactly 5,000 km. At 15,000 business kilometres the effective rate is 30.3 cents. At 30,000 km it is 15.2 cents.
• One car in a typical Australian household costs $11,651 a year to run, ranging from $10,631 in Townsville to $13,666 in Sydney, a spread of $3,035 for the same vehicle.
• The logbook method overtakes cents per kilometre at 39.1% business use on an average car. Above that line, the cap is costing you money.
• Loan repayments are the single largest transport cost in every Australian city measured, at roughly $216 a week per household, more than fuel and insurance combined.

The rate that is not really a rate

Most coverage of the 2026-27 increase stops at the headline. The ATO's own determination does not:

"From 1 July 2026, the cents per kilometre rate for calculating motor vehicle expenses is 91 cents per kilometre. This change will apply for the 2026-27 income year. This figure is the base cents per kilometre rate of 89 cents with a temporary one-off uplift of 2 cents per kilometre for the 2026-27 income year. For future income years, the calculated annual indexation rate will be applied to the 2026-27 base cents per kilometre rate of 89 cents."

Two things follow from that paragraph, and neither is obvious from the headline number.

The uplift is temporary. Next year's rate will be indexed from 89 cents, not from 91. Unless indexation exceeds about 2.2%, the 2027-28 rate will land below this year's figure. A rate rise that partially reverses is unusual, and it means any multi-year budgeting off 91 cents is optimistic.

And the rate is a full-cost proxy. It is deemed to cover everything: fuel, servicing, tyres, registration, insurance, and depreciation. You cannot claim 91 cents per kilometre and then also claim your rego.

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The cap is the real story

The rate gets the attention. The cap does the damage.

Five thousand kilometres is not a lot of driving. A tradesperson covering three jobs a day across a metropolitan area will pass it inside four months, and a mobile mechanic driving to the vehicle rather than the other way round will pass it sooner. Once past it, the claim stops rising while the driving does not.

There is exactly one point on that table where you receive the advertised rate, and it is the first row. Everywhere below it, the "91 cents per kilometre" method pays something else entirely.

This is not a loophole or an error. The cap is the published design of the method, and the ATO offers the logbook method precisely for people who exceed it. The problem is that the cents per kilometre method is the default in most tax software and the one most sole traders reach for, because it requires no records beyond a reasonable estimate.

What actually counts as a business kilometre

Before any of the arithmetic matters, the denominator has to be right, and this is where most claims quietly break.

The trip from home to work and back is private, not business, even if you own the business, even if you are a sole trader, and even if you carry tools. It is the single most common error in vehicle claims.

What generally does count:

• travelling between two separate workplaces or job sites in the same day
• driving from your usual workplace to a client, supplier or the tip and back
• carrying bulky equipment that genuinely cannot be left on site, where there is nowhere secure to store it
• travel where your home is a genuine base of business and the trip is between jobs rather than commuting

What does not:

• home to the first job and the last job back home, in the ordinary case
• a detour for something personal, for the personal part of it
• any trip you cannot evidence if asked

If your home genuinely is your place of business and you leave it to attend jobs, far more of your driving is business than a commuter's. That is exactly the situation where the 5,000 kilometre cap does the most damage, and it is why sole trader deductions are worth understanding properly rather than estimating.

What a car actually costs to run

The Australian Automobile Association publishes a quarterly Transport Affordability Index that prices a typical household's transport in every capital city and a regional centre in each state. The figures below are from the June quarter 2026 release.

The AAA models a household with two cars, so the per-car figures here are derived: total weekly transport cost, less public transport, divided by two, annualised. That derivation is ours, not the AAA's.

The same car costs $3,035 a year more in Sydney than in Townsville. Nothing about the vehicle changes. Tolls, registration, CTP and insurance do.

Where the money actually goes

The category split is the part most operators get wrong. Fuel dominates the conversation and does not dominate the bill.

Loan repayments are nearly half of household transport cost, and more than fuel, insurance and servicing combined. Every cent of fuel excise movement gets news coverage; the financing line is twice the size and moves with interest rates and with what you chose to buy.

The two cities at the extremes show where the variable costs bite:

Sydney households pay $60 a week in tolls, more than double Melbourne and more than they pay in registration, CTP and licensing combined. Tolls are the single biggest reason Sydney tops the table, and they are the one line item on it that is close to unavoidable if your work takes you across the city.

Registration and CTP, the number people complain about most, is 7.4% of the national bill. If you want your own figure rather than the average, the vehicle registration cost calculator prices it by state.

Regional is cheaper, but not on fuel

The obvious assumption is that running a vehicle outside a capital city is cheaper across the board. It is cheaper overall, but not for the reason most people would guess.

Averaging the eight capitals against the seven regional centres the AAA measures:

Regional households pay more for fuel than capital-city households, by $7.72 a week. They still come out $41.77 ahead, because they pay no tolls at all, effectively no public transport, and less for insurance.

The fuel spread within regional Australia is larger than the gap between city and country: Bunbury at $125.70 a week against Wagga Wagga at $68.70, nearly double, for the same modelled household. If your work vehicle lives in a high-fuel regional centre, fuel is a materially bigger share of your cost base than any national average suggests, and the fuel excise movement matters more to you than to a Sydney operator paying $60 a week in tolls.

The crossover: when the logbook wins

Here is the calculation worth doing before your next return. Against a national-average car at $11,651 a year:

Above 39.1% business use, the cents per kilometre method costs you money.

For a tradesperson, mobile mechanic, cleaner or courier whose vehicle is 70% or more business, the gap is $3,600 or more a year in deductions left on the table. In a city with high tolls and high registration, it is larger, because the logbook method claims a share of your actual costs and your actual costs are higher.

The trade is record-keeping. The logbook method requires a valid 12-week logbook, which then holds for five years, plus records of actual expenses. Twelve weeks of records for five years of a materially larger claim is, for most people above that 39.1% line, the best-paid administrative work available to them.

How the logbook method actually works

People avoid the logbook because they picture a year of writing down odometer readings. That is not what it requires.

Twelve continuous weeks. You record every trip for one 12-week period that is representative of your normal driving. Not the year. Twelve weeks.

It then holds for five years. That single logbook establishes your business-use percentage for five income years, provided your circumstances do not materially change. Twelve weeks of records buys five years of a larger claim.

Each trip needs four things. Start and end dates, start and end odometer readings, kilometres travelled, and the reason for the trip. "Client visit, 14 Smith St" is enough; "work" is not.

You also keep the expense records. The logbook establishes the percentage; the receipts establish the amount. Fuel, servicing, tyres, insurance, registration and interest on the loan all count, and depreciation is calculated separately.

Start it now, not in June. A logbook cannot be applied retrospectively to driving you did not record. If you are reading this in the second half of the financial year, the 12 weeks you start today still establishes the percentage for the following four years.

The practical failure is not the logbook itself. It is that the records live in a glovebox notebook that does not survive a question about them, or in a phone app that is not connected to the jobs the trips were for.

What the rate is deemed to cover

A common and expensive misunderstanding: the cents per kilometre rate is not a fuel reimbursement. It is deemed to cover the whole cost of running the car, including:

• fuel
• servicing and repairs
• tyres
• registration and CTP
• insurance
• depreciation

If you use it, you cannot separately claim any of those. That matters when you compare it against the AAA figures above, because the $11,651 national average covers the same ground. The two numbers are directly comparable, which is exactly why the cap is so visible: $4,550 against $11,651 is 39% of the cost of the car.

Depreciation is also subject to a separate ceiling on the cost of the vehicle itself for people using the logbook method, and the depreciation calculator will run the decline in value once you know your figure. That threshold is indexed annually and we have deliberately not quoted a figure here, because we could not read it from a primary ATO source at the time of writing. Check the current car limit before you buy.

A worked example

A plumber based in Brisbane, home as the business base, driving to jobs across the city.

The kilometres actually driven for business are 16,800. The cents per kilometre method will recognise 5,000 of them. The other 11,800 business kilometres produce no additional deduction at all.

Note the last row carefully. The extra $3,707 of deduction is not $3,707 in your pocket; it is $3,707 off your taxable income, which at that marginal rate is about $1,186 in cash. On the 2026-27 scale a sole trader earning between $45,001 and $135,000 faces 30% plus the 2% Medicare levy; you can check your own position with the sole trader tax calculator. Deductions are a discount, never a rebate, and anyone telling you otherwise is selling something.

What to do about it

1. Work out your real business-use percentage. Not your estimate, the actual figure from a fortnight of driving. It is the only input that decides which method wins.
2. If it is over about 40%, start a logbook now. It runs for 12 consecutive weeks and then holds for five years. Starting one in April to cover the year you have already driven does not work.
3. Keep the receipts you are currently throwing away. The logbook method claims a share of actual costs, so servicing, tyres, insurance and registration all need records.
4. Price your travel into your rate, separately from the deduction. A deduction returns your marginal tax rate on the expense, not the expense. Travel time and vehicle cost belong in what you charge per hour, not just in what you claim.
5. Look at the financing line before the fuel line. Loan repayments are 46.9% of transport cost nationally. A cheaper vehicle beats every efficiency measure available to you.

If you are tracking business kilometres on paper or in a notes app, the odds are you are under-claiming, because the records will not survive a question about them. Logging trips against jobs as they happen is the difference between an estimate and a claim you can defend, and it is what job management software is for. You can also check your own position with the cents per km calculator and the vehicle running cost calculator.

Frequently asked questions

What is the ATO cents per kilometre rate for 2026-27?

91 cents per kilometre, applying from 1 July 2026. The ATO states this is a base rate of 89 cents plus a temporary one-off uplift of 2 cents for the 2026-27 income year, and that future indexation will be applied to the 89 cent base rather than to 91 cents.

How much can I claim using the cents per kilometre method?

A maximum of $4,550 per car per year, which is 5,000 business kilometres at 91 cents. The 5,000 kilometre cap applies per car, per year, and cannot be exceeded under this method no matter how far you drive.

What is the effective rate if I drive more than 5,000 business kilometres?

It falls in proportion, because the claim stops at $4,550. At 10,000 business kilometres the effective rate is 45.5 cents per kilometre, at 15,000 it is 30.3 cents, and at 30,000 it is 15.2 cents. You only ever receive the advertised 91 cents at exactly 5,000 kilometres.

When should I switch from cents per kilometre to a logbook?

At about 39.1% business use on an average car. Below that line the cents per kilometre cap is worth more than a share of your actual costs; above it, the logbook method claims more. At 70% business use the difference on a national-average car is about $3,606 a year.

How much does it cost to run a car in Australia?

Around $11,651 a year for one car in a typical household, based on the Australian Automobile Association's June quarter 2026 Transport Affordability Index with public transport excluded and the two-car household halved. It ranges from $10,631 in Townsville to $13,666 in Sydney.

What is the biggest cost of running a vehicle in Australia?

Loan repayments, at $215.76 per household per week nationally, or 46.9% of total transport cost. That is more than fuel ($101.26), insurance ($51.79) and servicing and tyres ($35.28) combined. Fuel is second at 22.0%.

Why is Sydney the most expensive city to run a car?

Tolls. Sydney households pay $60.00 a week in tolls against Melbourne's $26.64, and $0.00 in Adelaide, Perth, Hobart, Darwin and Canberra. Sydney also has the highest registration, CTP and licensing cost of the capitals at $45.41 a week. The vehicle and its financing cost roughly the same everywhere.

Does the cents per kilometre rate cover registration and insurance?

Yes. The rate is deemed to cover all running costs including fuel, servicing, repairs, tyres, registration, CTP, insurance and depreciation. If you claim cents per kilometre you cannot separately claim any of those expenses for the same vehicle.

Methodology

The tax figures are from the ATO's own determination for the 2026-27 income year, read directly from the ATO software developers site, which publishes the rate and the wording quoted above. The 5,000 kilometre cap and the list of costs the rate is deemed to cover are the published terms of the method.

The cost figures are from the Australian Automobile Association's Transport Affordability Index, June quarter 2026, read directly from the AAA's published figures for all 16 locations it measures. The AAA models a hypothetical household of a couple with children living in a middle to outer ring suburb, both employed, in a detached house, with two cars.

The per-car derivation is ours, not the AAA's. We took each location's total weekly transport cost, removed the public transport component because it is not a vehicle cost, divided by two for the two-car household, and annualised at 52 weeks. Anyone wanting the AAA's own published figure should use the per-household number.

The crossover calculation compares the maximum cents per kilometre claim ($4,550) against the logbook claim on a national-average car ($11,651 × business-use percentage). It compares deduction amounts, not tax refunded: what you actually receive is your marginal rate applied to the difference.

What is not modelled. Depreciation limits on the vehicle's purchase price, fringe benefits tax, GST credits and the treatment of vehicles above the car limit are all out of scope. We could not read the current car limit from a primary ATO source at the time of writing, and have not quoted a figure rather than repeat a second-hand one. The AAA index also assumes a household, not a business, so it includes a public transport line we removed and does not model commercial vehicle use, heavy loads or high-kilometre operation.

Reproducibility. Every figure in this report comes from one of those two sources or from arithmetic on them. Where a number is derived rather than published, it is labelled as such above.

About the author

Bishal Shrestha is the founder of OneBookPlus, an Australian business management platform built in Melbourne. He has worked with more than 200 Australian small and medium businesses across trades, transport, cleaning and professional services. OneBookPlus builds free Australian tax and vehicle calculators and publishes research on the real cost of running a small business in Australia.

What this is not. General information, not tax advice. Which method suits you depends on your vehicle, your business-use percentage, your records and your structure. Confirm current rates with the ATO or a registered tax agent before lodging.