Kilometre rates for the business use of vehicles for the 2025 income year
The rates set out below apply for the 2024-2025 income year for business motor vehicle expenditure claims. The Tier 1 and Tier 2 rates reflect an overall increase in vehicle running costs in the income year, largely due to fuel costs. The Commissioner uses third-party data to set the appropriate kilometre rates for the income year.
From the 2024-2025 income year, the Commissioner has conducted a review of the published vehicle kilometre rates, due to a significant difference in vehicle running costs between the different vehicle types (Petrol, Diesel, Petrol Hybrid and Electric). Traditionally the Commissioner has set a single Tier One rate, however, due to the significant difference in running costs a Tier One rate has been set for each vehicle category to ensure the rates accurately reflect reasonable expenditure related to the business use of that particular vehicle.
The table of rates for the 2024-2025 income year
The Tier One rate is a combination of your vehicle's fixed and running costs. Use it for the business portion of the first 14,000 kilometres travelled by the vehicle in an income year. This includes private use travel.
The Tier Two rate is for running costs only. Use it for the business portion of any travel over 14,000 kilometres in an income year.
| Vehicle Type | Tier 1 rate per km | Tier 2 rate per km |
|---|---|---|
| Petrol | $1.17 | $0.37 |
| Diesel | $1.26 | $0.35 |
| Petrol Hybrid | $0.86 | $0.21 |
| Electric | $1.08 | $0.19 |
Guidance to the use of the kilometre rates
This note provides some clarification to the use of the Commissioner’s vehicle kilometre rates. For more detailed information, please also read Operational Statement 19/04a, “Commissioner's statement on using a kilometre rate for business running of a motor vehicle – deductions” and 19/04b, “Commissioner's statement on using a kilometre rate for employee reimbursement of a motor vehicle”. Please be aware that the Commissioner is in the process of reviewing and updating these operational statements.
Use of the rates for business vehicles
In situations where a business intends to claim expenses for a motor vehicle that is used for both business and non-taxable (private) purposes, they must calculate the proportion of business use. They can do this by either deducting the business portion of their actual motor vehicle costs (the cost method) or using the kilometre rates set annually by the Commissioner (the kilometre rate method).
The above rates are applicable when using the kilometre rate method for calculating business use of the vehicle during the 2024-2025 income year and provide a reasonable estimate of the related expenditure for the use of the vehicle that can be claimed as a deduction in that year.
Use of the rates for employee reimbursement for use of a vehicle
The Commissioner’s motor vehicle kilometre rates are set primarily to provide an alternative method for calculation of claims for vehicle expenditure by business customers. They relate to the prior income year to assist with calculating deductible expenditure for return filing for that year. However, the Commissioner understands that some employers may use the motor vehicle kilometre rates as a reasonable estimate of expenditure likely to be incurred by employees when providing reimbursements for the business use of private motor vehicles.
The requirement that reimbursement must be a “reasonable estimate of expenditure” does not necessarily mean the kilometre rates can or should be used. There are other methods of determining reasonable expenditure of an employee’s business use of a vehicle. However, the use of the kilometre rates for determining a “reasonable estimate of expenditure” is accepted by the Commissioner, but employers need to be aware of factors that may mean this is no longer reasonable.
The kilometre rates are set for a particular year based on factors that impact expenditure in that period. Reimbursement of expenditure is likely to occur in the current income year where factors may suggest these rates are no longer a reasonable estimate of the expenditure incurred. Further, the use of these rates may not be practical based on an employer not knowing each vehicle type employees are using. In these circumstances the Commissioner accepts a reasonable estimate that may be a blended average of the published kilometre rates, in order to reduce any compliance costs. However, employers need to consider that this is still appropriate in the circumstances and timing of any reimbursement payment.
To assist understanding of what is a “reasonable estimate” of expenditure, some examples are provided below.
Examples:
| Example one – business vehicle (petrol) greater than 14,000 kms travelled - logbook maintained |
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The business taxpayer uses their petrol car for both business and private purposes. The previous logbook test period calculates that 60% of the travel is for business purposes. The car travelled a total of 20,000 kilometres for the 2024-2025 income year. Deduction Tier 1 14,000 x $1.17 x 60% = 9,828.00 Tier 2 6,000 x $0.37 x 60% = 1,332.00 Total deduction = $11,160.00 |
| Example two – reimbursement payment to employee for business use of their own electric vehicle – logbook maintained |
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A business makes a reimbursement payment to an employee that has a logbook recorded that they travelled 5,000km for business use in their own electric vehicle in the 2025-2026 income year. The employer considers that the Commissioner’s kilometre rates for the 2024-2025 are still a reasonable estimate of expenditure that has been incurred by the employee and decides to use these rates to calculate the reimbursement payment. Reimbursement payment Tier 1 5,000 x $1.08 = $5,400 However, the employer is not required to calculate the reimbursement based on the Commissioner’s published kilometre rates and may consider a better reasonable estimate is available from third-party published running costs, actual expenditure or other reasonable sources. |
| Example three – reimbursement payment to employee for business use of their own vehicle (unknown type) – no logbook maintained |
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A business makes a reimbursement payment to an employee that has used their own vehicle for business use in the 2025-2026 income year. No logbook has been maintained, but evidence is provided of ad hoc short distances travelled for business purposes. The employer has many employees and does not track, nor have records of, the type of vehicle the employee uses. In this instance the employer is only required to determine a reasonable estimate of the expenditure incurred by the employee for the business use of their vehicle. The employer considers that the Commissioner’s kilometre rates for 2024-2025 are still a reasonable estimate of expenditure that has been incurred by the employee and decides to use an estimate based on these rates to calculate the reimbursement payment. The employer uses an average of the four Tier 1 rates (as the employee has only travelled for business a total of 1,000km in the year) and applies a rate of $1.09 per km for the reimbursement payment (1.17 + 1.26 + 1.08 + 0.86/4). The Commissioner does not expect the employer to have additional compliance costs and track vehicle types where that is not practical. However, the employer is not required to calculate the reimbursement based on the Commissioner’s published kilometre rates and may consider a better reasonable estimate is available from third-party published running costs, actual expenditure or other reasonable sources. |
Approved
Stephen Donaldson
Technical Lead, Legal Services
Date: 30 May 2025