Deducting car & travel expenses



With interstate borders opening up and the recent decision in Mfula v FCT [2021] AATA 3067 (Mfula), this is an opportune time to consider the deductibility of travel and car expenses. The Taxpayer’s arguments and statements in Mfula demonstrate that the legal framework around these types of deductions is complex; it requires a proper understanding of the rules and applying them appropriately to the facts.

Summary of Mfula


Mr Nkandu Mfula (the Taxpayer) was a medical locum who worked in hospitals across parts of NSW and Victoria, while living with his family in Melbourne. The Taxpayer’s work was arranged by Global Medics, an agency which negotiated the Taxpayer’s pay, allowances and conditions of work. Global Medics also paid the Taxpayer a meal allowance, which was negotiated to be included in the Taxpayer’s hourly rate. Outside his employment as a medical locum, the Taxpayer worked as an assistant surgeon in Melbourne and performed related administrative work from his residence.

Due to the large distances between the Taxpayer’s home and the hospitals where he worked, he was away from home for 247 days during the 2015–16 income year. Where assignments were in certain parts of NSW, Global Medics arranged the flights and accommodation for the Taxpayer. In such cases, the Taxpayer would drive to and from Melbourne from his residence or another place of work. On other occasions, the Taxpayer would drive to and from NSW himself. 

The Taxpayer incurred and claimed the following expenses in his 2016 income tax return:

  • Car expenses using the cents per kilometre method, totalling $6,600; and
  • Expenses incurred while working away from home, consisting of:
    • meal expenditure applying the reasonable estimates of the Commissioner of Taxation (Commissioner or ATO) for the 2015–16 income year totalling $36,111.40; and
    • incidental expenses using the Commissioner’s reasonable estimates for the 2015–16 income year totalling $6,619.60.

Following an audit of the Taxpayer’s work-related expenses, the Commissioner concluded that the Taxpayer’s car expenses were non-deductible and only $665 of the other work-related expenses were deductible. These findings were reflected in a notice of amended assessment issued to the Taxpayer on 10 September 2018 that included an amount of shortfall interest charge (SIC) of $1,183.90.

In 2019, the Taxpayer objected to the amended assessment, which was dismissed by the Commissioner. In response, the Taxpayer sought a review of the Commissioner’s decision by the Administrative Appeals Tribunal (AAT).


The AAT in Mfula considered whether:

  • the work-related car expenses of $6,600 were deductible;
  • the other work-related travel expenses totalling $41,793 were deductible; and
  • the SIC should be fully or partially remitted.


The AAT upheld the Commissioner’s decision to disallow both the work-related car and travel expenses claimed by the Taxpayer in his 2016 income tax return.

Work-related car expenses

In determining the deductibility of the Taxpayer’s car expenses, Senior Member Kirk considered whether the Taxpayer’s travel was necessary or incidental to his employment.

Referring to payment summaries and staff policies provided by the local health districts in which the Taxpayer worked, Senior Member Kirk agreed with the Commissioner’s argument that a medical locum engaged by a public health organisation is an employee of that organisation for the duration of their assignment. She also referred to statements and payment summaries provided by each local health district that indicated that no meal allowances were paid, he was not required to travel for work and that all accommodation was provided to him.

Due to the various types of travel undertaken by the Taxpayer, Senior Member Kirk classified the Taxpayer’s travel into six scenarios:

  1. The Taxpayer travelled by his car from his home in Melbourne to Melbourne airport and returned to undertake his locum employment in NSW.
  2. The Taxpayer travelled by his car from his home in Melbourne to his assistant surgeon duties as a sole practitioner and returned home.
  3. The Taxpayer travelled from his assistant surgeon duties to Melbourne airport by his car and returned to undertake his locum employment in NSW.
  4. The Taxpayer travelled by his car from his home in Melbourne directly to his locum work in NSW and returned to undertake his locum employment in NSW.
  5. The Taxpayer travelled by his car from his home in Melbourne to his locum work in NSW and on completion of duties at the first NSW LHD hospital, he then travelled by his car to a second NSW LHD hospital and either returned to the first NSW LHD hospital or home.
  6. The Taxpayer travelled by his car from his home in Melbourne directly to his locum work in NSW and on completion of duties he travelled to another destination where he did not carry out any locum duties and then travelled home.

Senior Member Kirk stated that the key issue when determining whether car expenses are work-related and therefore deductible under s 8-1 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997) at para [93]:

Determining whether a particular transport expense is ‘incurred in gaining or producing assessable income’ involves consideration of the proper scope of the employee’s work activities to determine if the circumstances of the transport expense have a sufficiently close connection to earning the employment income. Regard must be had not just to the duties in the contract of employment, but to the nature of the work as a matter of substance.

As the evidence showed that the Taxpayer was not required to travel as part of his work as a medical locum, the AAT held that the car expenses incurred in scenarios 1, 3 and 5 were not deductible. As the Taxpayer failed to prove that his residence was a place of work such that it could be deductible under s 25-100 of the ITAA 1997, the AAT held that the car expenses incurred under scenario 2 were not deductible. 

As scenario 6 involved the taxpayer traveling to a destination where he did not carry out any locum duties, it was apparent that this travel was not work-related travel or connected with his employment and was therefore not deductible.

Finally, as the Commissioner had established that the individual hospitals were in fact the Taxpayer’s employers rather than Global medics, his duties at each place of work commenced when he arrived and ceased when he left. This meant that he was not travelling as part of his duties when travelling from one hospital to another while working as a locum because he had already ceased his employment duties at the former hospital. As a result, the AAT found that the car expenses incurred under scenario 5 were not deductible.

Work-related travel expenses

Senior Member Kirk agreed with the Commissioner’s decision that the work-related travel expenditure claimed by the Taxpayer was non-deductible. She considered that in the Taxpayer’s circumstances, the expenditure was private or domestic in nature pursuant to s 8-1(2)(b) of the ITAA 1997. She made the following remarks at para [137]:

Having regard to the relevant authorities and the guidance provided in TR 2021/D1, the Tribunal is satisfied that an employee cannot deduct accommodation and food and drink expenses they have incurred where, due to their personal circumstances, they live far away from where they gain or produce their assessable income. These expenses are living expenses and are not deductible. Accordingly, it finds that the Applicant’s living expenses, including his food, drink and incidental expenses, whether or not he was paid an allowance for these expenses, were ‘private or domestic in nature. They are not deductible due to the application of subsection 8-1(2)(b).

The AAT also noted that, even if the Taxpayer was travelling for work and entitled to a deduction for these expenses, he had failed to keep proper records pursuant to Division 900 of the ITAA 1997 and therefore unable to claim these amounts as deductions.

Shortfall interest charges

Senior Member Kirk stated that s 288-170 of the ITAA 1997 only allows the AAT to review the Commissioner’s decision not to remit an amount of SIC where the unremitted amount is more than 20% of the additional tax liability owed by the taxpayer. As the SIC imposed on the Taxpayer fell short of this 20% threshold, the AAT was not able to review the Commissioner’s decision not to remit the SIC imposed by the Commissioner in the notice of amended assessment.

Legislative framework for deducting car and travel expenses

The following table sets out the legislative framework that governs the deduction of work-related car and travel expenses for different types of entities.

TABLE 1: Overview of legislative framework for travel and car expenses

Type of expenseType of entityLegislative provision
Car expensesIndividuals and partnerships of individuals1Division 28 of the ITAA 1997
Travel expensesAll types of taxpayersSection 25-100 of the ITAA 1997
All types of taxpayers other than individuals and partnerships wholly of individualsSection 8-1 of the ITAA 1997
SubstantiationAll types of taxpayersDivision 900 of the ITAA 1997
Non-taxable use of a carIndividuals and partnerships of individualsOnly the business kilometres or business use percentage are taken into account under Division 28, so any private use is excluded by default
Non-taxable use of a carCompanies, trusts and partnerships of companies and/or trustsThe full expense is still deductible under s 8-1 if it incurred in carrying on a business. An entity cannot have a non-taxable purpose; any non-taxable use is dealt with through the FBT provisions

Refer to the section titled ‘Overview of the rules for deducting travel expenses’ below for a more detailed overview of the relevant rules for deducting car and travel expenses.

What makes the rules around travel and car expenses so complex?

Perhaps the biggest reason why the area of car and travel expenses is so complex is that taxpayers may be inclined to group these expenses together as they are all incurred on similar occasions. However, the tax law distinguishes between car and travel expenses and contains specific rules and exclusions that govern who may claim them and under what circumstances they may be claimed. This complex legislative framework has also been coupled with a growing body of case law and ATO guidance that taxpayers need to be aware of so they can correctly apply the rules to their situation.

Prior to 2001, taxpayers claimed travel expenses under s 8-1 to the extent that they were incurred in gaining or producing assessable income or incurred in the course of carrying on a business to gain or produce assessable income. It was understood that you were allowed to claim deductions for travel expenses when you incurred them on business or in the course of your employment.

For example, the taxpayer in Garrett v FCT (1982) 12 ATR 684 (Garrett) lived on and generated assessable income from a farm. He also worked as a medical practitioner and flew to various remote locations in NSW as part of this work. The Federal Court held that the expenses incurred by the taxpayer to travel between his farm and medical assignments were deductible, albeit that the income-producing activities were unrelated and one of these places was his home.

However, the Federal Court’s decision in Payne v FCT [1998] FCA 758 (Payne) departed from these earlier decisions. In that case, the taxpayer sought to claim expenses he incurred while traveling between a deer farm in regional NSW, where he lived and worked, and Sydney Airport where he was employed as an airline pilot.

The Federal Court ruled that taxpayers could claim deductions for travel expenses only where they were incurred when travelling between two related workplaces. Put another way, you can claim a deduction under s 8-1 for expenses incurred while travelling ‘on work’, but not when travelling ‘to work’.

Here, the Court found that the taxpayer’s costs incurred in traveling between his deer farm and the airport merely enabled him to perform his work, but these amounts were not incurred as a necessary incident of the work he undertook at either location. His travel did not form part of his income-producing activities, either as a deer farmer or as a pilot.

Consequently, s 25-100 was inserted into the ITAA 1997, with effect from the 2001–02 and later income years, to allow taxpayers to claim travel expenses when travelling between two workplaces even if they are unrelated, subject to meeting the conditions in that provision.

To help you understand how the operative provisions apply in the context of travel and car expenses, an overview of these rules is provided below.

Overview of the rules for deducting travel expenses

Section 25-100 of the ITAA 1997

Section 25-100 allows individual2 taxpayers to claim a specific deduction for travel expenses, provided that they can demonstrate that they meet certain criteria.

Subsection 25-100(1) broadly requires the following:

  • An individual incurred the expense on transport costs, which include the cost of:
    • driving your car, ute, van or motorcycle 
    • ride-share and ride-sourcing (such as Uber) 
    • flights 
    • catching a train, taxi, boat, bus or other vehicle (includes fares and tolls) 
    • fuel when you use someone else’s car or other vehicle; and
  • The expenses were incurred while travelling between workplaces. 
    • Travel between workplaces means that you were engaged in income-producing activities or in the course of carrying on a business for the purpose of producing assessable income, and you travelled to the second place with the intention of performing activities or carrying on a business for the purpose of producing or gaining assessable income. 
    • The two workplaces do not need to be related to one another, unlike the decision in Payne, as that case concerned the application of s 8-1. Section 25-100 had not been enacted at that time. 

However, subsection 25-100(2) prevents you from claiming a deduction under s 25-100 in certain situations, even if you satisfy all the conditions in subsection (1).

These exclusions are as follows:

  • You reside at either of the two workplaces3
    • The arrangement that allowed you to gain or produce assessable income at the first location ended when you left that location; or 
    • The transport expenses are capital or capital in nature. Examples of transport expenses that would be of a capital nature may include the cost: 
    • to purchase a motor vehicle used to travel between two workplaces (though the decline in value of the motor vehicle may be deductible under Division 40 of the ITAA 1997); 
    • of travelling to from one workplace to the other to perform renovations or other capital works; 
    • of travelling from one workplace to the other to sign a lease or renew a lease over the premises. 

Section 8-1 of the ITAA 1997

Although s 25-100 is the primary provision that allows individual taxpayers to claim transport expenses when travelling between two workplaces, there may be situations where a deduction is not covered by s 25-100. Depending on the facts and circumstances, taxpayers may still be able to claim a deduction under for transport expenses under s 8-1.

These situations are as follows:

  • Travel between a workplace and a place where the Taxpayer resides on related business. 
    • You may be able to claim a deduction for travel between a place where you reside and a workplace where the business carried on at the two places is related. The transport expenses must be incurred in the course of performing related income-producing activities at both places, rather than travelling between two places to perform unrelated income-producing activities in each location. In other words, the transport expenses must be incurred while traveling ‘on work’, rather than traveling ‘to work’. 
  • A company or trust reimburses an employee’s travel between two workplaces. 
    • Although companies and trusts cannot claim deductions for travel between workplaces that meet the conditions in s 25-100, they may be able to claim the reimbursements under s 8-1. These amounts may be subject to FBT equal to their taxable value. 
    • Any expenses reimbursed must also pass the negative limbs of s 8-1 before the company or trust may claim them as a deduction. For completeness, the negative limbs pursuant to s 8-1(2) require that the expense must not be: 
      • capital or capital in nature; 
      • of a private or domestic nature; 
      • incurred in producing either exempt or non-assessable non-exempt income; or 
      • prevented from being deducted by another legislative provision. 

Claiming deductions for car expenses under Division 28

Where an individual or a partnership that includes at least one individual owns or leases a car, they must apply the rules in Division 28 of the ITAA 1997 and use either the cents per kilometre method or logbook method when calculating their car expenses for the relevant period.

Division 28 is the sole set of provisions for these taxpayers; they cannot claim car expenses under s 8-1. For clarity, taxpayers that are companies, trusts or partnerships consisting wholly of companies and/or trusts cannot claim car expenses under Division 28; these are claimed in full under s 8-1.

Cents per kilometre method

Section 28-25 sets out the cents per kilometre method for calculating car-related expenses. The deductible amount for the relevant period is calculated by applying the following formula:

Business kilometres travelled x Commissioner's specified rate

The current rate is 72 cents per kilometre for the 2020–21 and 2021–22 income years (as shown on the ATO’s website).

This method limits taxpayers to 5,000 business kilometres for each vehicle they owned or leased during the income year. This means that any amounts exceeding this limit cannot be included in the calculation.

A taxpayer’s business kilometres represent the number of kilometres they travelled during the income year on work-related travel or in the course of producing their assessable income.4 Refer to the preceding sections for more details about what constitutes 
work-related travel.

When using the cents per kilometre method, a taxpayer does not need to calculate or substantiate their actual car expenses. It is sufficient to use a reasonable estimate. This could include diary entries or evidence of regular patterns of business travel. 

Logbook method

Section 28-90 sets out details about using the logbook method for calculating car expenses which include:

  • Petrol and oil
  • Repairs and maintenance
  • Registration and insurance
  • Financing costs.

A taxpayer electing to use this method applies the following formula:

Total car expenses x Business kilometres travelled during the income year

                                   Total kilometres travelled in the income year

To use this method, a taxpayer will need to keep the following records:

  • an electronic or pre-printed logbook
  • evidence of actual fuel and oil costs, or odometer readings used to estimate fuel and oil usage
  • evidence of all other car expenses.

Claiming amounts reimbursed to employees

As noted above, only individuals and partnerships including at least one individual may claim deductions for car expenses under Division 28 of the ITAA 1997. Where an employer reimburses an employee for these expenses and seeks to deduct them pursuant to s 8-1, they must claim the full amount and not merely the taxable use. The portion of car expenses that relates to private or non-business use is subject to the fringe benefits tax (FBT) regime.

Deductions for food and meal expenditure

Generally, food, drink and accommodation expenses are non-deductible as they are private or domestic in nature and are therefore denied under the second negative limb pursuant to s 8-1(2)(b).

However, these amounts may be deductible where a taxpayer’s employer requires them to stay overnight away from their usual residence as an incident of their work duties. A taxpayer cannot claim these expenses simply because they choose to live far away from their workplace.

Taxation Ruling TR 2021/4 provides detailed guidance and examples about the ATO’s views on these issues.

Implications for you and your clients

Understand the facts

A cursory perusal of the judgment in Mfula may lead some to conclude that the AAT’s decision was surprising. At first glance, the Taxpayer’s relationship with Global Medics resembled an arrangement where an employment agency pays and subcontracts personnel to work at various third-party sites. The Taxpayer himself characterised his relationship with Global Medics as an employer-employee relationship.

However, a detailed examination of the facts and circumstances reveals that there was a range of factors suggesting that the Taxpayer did not have an employer-employee relationship with Global Medics. The Tribunal’s findings were founded on a meticulous examination of the various contracts, employment arrangements and work patterns of the Taxpayer.

Based on her analysis of the evidence, Senior Member Kirk concluded that the Taxpayer was in fact employed by each local hospital where he worked and not by Global Medics. The outcome may have been very different if the AAT had instead found Global Medics to be the Taxpayer’s employer.

This case is a timely reminder to ensure that you understand your clients’ unique facts and circumstances and ensure that you correctly apply the legal principles to them. This is particularly relevant for taxpayers who are subcontracted to various locations as part of their work, as the deductibility of these expenses may depend on whether they are employed by their agency or each distinct workplace. In Mfula, the Taxpayer and his adviser’s failure to address this point ultimately led to the Tribunal dismissing the Taxpayer’s appeal.

Additionally, it is important that you discuss with your clients the types of work-related travel that are deductible in their circumstances as travel within and between states is inevitably resuming with NSW and Victoria emerging from extended COVID-19 lockdowns.

Working arrangements in a post-lockdown world

There is no doubt that the COVID-19 pandemic has irreversibly transformed how the vast majority of businesses and employees work. The previous practice where most employees spent the bulk of their time in the office has been inverted, where some employees may only go into the office once a week or fortnight. An increasing number of employers have adopted this hybrid style of working arrangement with their employees.

From a tax perspective, these paradigm shifts mean that taxpayers and their advisers need to understand the rules around work-related travel and car expenses to ensure they only claim deductions to which they are entitled. 

On 11 August 2021, the ATO published TR 2021/4: Income tax and fringe benefits tax: employees: accommodation and food and drink expenses travel allowances, and living-away-from-home allowances (TR 2021/4) to address the Commissioner’s views on when and how taxpayers may claim accommodation, food and drink expenses.

Some of the key points in TR 2021/4 are as follows:

  • An employee can deduct accommodation or food and drink expenses only where they pass both the positive and negative limbs of s 8-1.5 To determine whether these expenses are sufficiently connected with the production of assessable income, the taxpayer should consider the scope of their income-earning activities.6
  • Accommodation and food and drink expenses are generally private or domestic in nature and are generally not deductible under s 8-1. This includes the costs an employee incurs to maintain their usual residence and of consuming food and drink to go about their daily activities.7
  • Amounts incurred by an employee on accommodation or food and drink expenses while traveling and staying away from their usual residence overnight in the course of their employment duties may be deductible under s 8-1.
  • An employee cannot deduct accommodation and food and drink expenses they have incurred where, due to their personal circumstances, they live far away from where they gain or produce their assessable income.8
  • When an employee’s place of work or usual place of residence change, any resulting accommodation or food and drink expenses they incur are not deductible.9 However, where there is no change to an employee’s usual place of work or usual residence and they incur accommodation or food and drink expenditure while traveling and staying overnight for work purposes, these amounts may be deductible under s 8-1.10
  • Where an employee is traveling on work and thus able to deduct any accommodation or food and drink expenses incurred, they may also be able to deduct other incidental and necessary expenditure which they incur under s 8-1.11
  • Where only part of the accommodation or food and drink expenditure is incurred in the course of their employment or income-producing activities, they must apportion these expenses and only claim the portion relating to income-producing activities. Taxpayers also need to apportion expenses where they are partially capital or private or domestic in nature.12

Maintain proper records

While perhaps not as interesting as tax technical issues, the Mfula case highlights the importance of taxpayers keeping proper records to substantiate their tax affairs. In the reasons for the decision, the Tribunal explained that the Taxpayer did not keep sufficient records to support his claim even if the expenses had been incurred while travelling on work.

It may not be the dazzling part of tax administration, but insufficient substantiation is the undoing of many taxpayers’ claims over the years. We can point to dozens of cases where taxpayers’ downfalls before the AAT or the courts in disputes with the Commissioner can be attributed to a lack of documentary evidence, an inability to substantiate claims for deductions and a lack of awareness that the onus for proving an assessment is excessive rests solely with the Taxpayer; it is not for the Commissioner to prove that the assessment or amended assessment is correct.

For reference, s 900-15(1)(b) of the ITAA 1997 provides that a taxpayer must have written evidence in order to claim a work expense. The legislative requirements around written evidence are contained in Subdivision 900-E.

Accordingly, it is crucial that your clients are aware of the record-keeping requirements and the inability to deduct expenses that they are unable to substantiate. In particular, although bank statements may be sufficient for book-keeping purposes, they are not capable on their own to substantiate work-related expense claims for tax purposes.

The ATO’s myDeductions tool in the ATO’s smartphone app allows taxpayers to upload documentation and record deductions as and when they incur them, making the tax return process quicker and more painless and ensuring that taxpayers have the proper documentation at hand. Additional information about the myDeductions tool can be found on the ATO’s website.

Note that a company, trust, a partnership of companies or a partnership of trusts may be entitled to claim a deduction where it reimburses employees for work-related travel under s 8-1 of the ITAA 1997. However, the original expenditure must have been incurred by an employee.
An individual may include an individual partner of a partnership, but not a company, a trust or a partnership of companies and/or trusts.
Section 25-100(3) does not specify that the place must be your main residence. A place where you temporarily reside, such as a holiday house, would still be a place where you reside for this purpose.
Section 26-31 of the ITAA 1997 prevents taxpayers from claiming deductions for the cost of travel related to the gaining or producing assessable income from the use of residential premises as residential accommodation. A range of exceptions are set out in s 26-31(2).
TR 2021/4 at paras [5]–[7] and [16].
Ibid, at para [8].
Ibid, at paras [9], [11]–[13].
Ibid, para [25].
Ibid, at paras [40], [45], [47].
10 Ibid, at para [46].
11 Ibid, at para [87].
12 Ibid, at paras [88]–[89].

Further guidance and information 

If you have any specific concerns that have not been outlined above, please email


DISCLAIMER: The material and opinions in this article should not be used or treated as professional advice and readers should rely on their own enquiries in making any decisions concerning their own interests.

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