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Deducting car & travel expenses.

Member only access

This article is exclusive to members of The Tax Institute. Already a member? Login now .

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
• 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:

• The Taxpayer travelled by his car from his home in Melbourne to Melbourne airport and returned to undertake his locum employment in NSW.
• The Taxpayer travelled by his car from his home in Melbourne to his assistant surgeon duties as a sole practitioner and returned home.
• The Taxpayer travelled from his assistant surgeon duties to Melbourne airport by his car and returned to undertake his locum employment in NSW.
• 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.
• 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.
• 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

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 individual 2 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:

• driving your car, ute, van or motorcycle 
• ride-share and ride-sourcing (such as Uber) 
• 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
• 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:

• 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:

• 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’. 
• 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. 
• 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 .

1  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. 2  An individual may include an individual partner of a partnership, but not a company, a trust or a partnership of companies and/or trusts. 3  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. 4  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). 5  TR 2021/4 at paras [5]–[7] and [16]. 6  Ibid, at para [8]. 7  Ibid, at paras [9], [11]–[13]. 8  Ibid, para [25]. 9  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 taxpolicy@taxinstitute.com.au .

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.

© 1996-2021 The Tax Institute (ABN 45 008 392 372 (PRV14016)). All rights reserved. The Tax Institute is a Recognised Tax Agent Association (RTAA) under the Tax Agent Services Regulations 2009.

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• Tax Deductions
• Work Related Car Expenses
• Cents Per Kilometre

ATO Cents Per Kilometre Car Expenses

The ATO’s proposed per kilometre car expense claim rate for 2024-25 is 88 cents per km.

• The claim rate for 2023-24 is 85 cents per km.
• The claim rate for 2022-23 is 78 cents per km.

Cents Per Km is one of the methods you can choose to satisfy the substantiation rules for individuals claiming car expenses as a tax deduction .

Jump to cents per km calculator

How To Claim Using The ATO Cents Per Kilometre Method

For up to 5,000 business kms, this claim method avoids the need to keep track of individual car expenses and receipts. A diary is recommended to keep track of the business kms.

Under this method, full substantiation (e.g. receipts for expenses) isn’t needed, however there must exist an objectively reasonable basis of facts to enable a claim.

The claim allowed is for “ Business kilometres “. Business kilometres are those travelled by car in the course of producing assessable income, or between work places. The claim method can be used by the self-employed or employees.

The cents per km claim is based on a per kilometre allowance for up to 5,000 business kilometres a year in total.

If more than 5,000 business kms is established, this claim method can still be used, but the excess over 5,000 kms is ignored.

ATO Cents Per Kilometre Rate Expense Calculator

Result: $ 0.00, result limited to maximum 5,000 kms: $ 0.00.

Spreadsheet version (xlsx) free download:

The ATO’s Per Kilometre Rates Year by Year

Choosing the per km set rate car claim method.

Substantiation documents are not formally required for per km car claims. A claim for business kms using a per kilometre rate is a simple alternative to calculating a claim for actual expenses, and covers all running expenses and depreciation.

The simplicity of the claim and minimal record keeping are the main advantages.

However, this claim method only applies up to a maximum of 5,000 business kilometers. If business kms total more than 5,000, a claim can still be made, but is limited to the first 5,000 kms.

The claim method is set out in subsection 28-25(1) of the Income Tax Assessment Act 1997.

Although this claim method avoids the need to keep receipts, the Tax Office still requires some evidence supporting the reason for the claim.

A diary record would meet this objective, but certain other circumstantial evidence may suffice. If in doubt, talk to your accountant.

Once the claim method is chosen for any year, it is not locked in for later years. Taxpayers can choose from year to year which car expense claim method to use.

There is no balancing adjustment on the disposal of a car which has only been claimed on a per km basis.

Log Book Alternative

Ideally a full log book record provides the best decision basis, even though that is not required in the case of the per km method.

This is because a properly maintained log book together with a record of actual expenses enables you to compare the claim value with alternatives, and choose another method if it results in a bigger claim.

If you would like to use a log book, there is a low cost Spreadsheet Motor Vehicle Log Book Template here .

Per kilometre – multiple claimants, multiple cars, joint owners

More than one car can be included in a claim for a financial year, and more than one person can conceivably make a claim in respect of the same vehicle used at different times.

For a useful explanation of joint and same-car claims, as well as some great log book and diary tips, see Bantacs Accountants “ Claiming a motor vehicle ” (PDF)

The per kilometre claim method doesn’t prescribe specific record-keeping requirements, but the claim has to be ‘reasonable’, and you need to be able to show some logical basis for the kilometres figure derived.

Per kilometre rates 2023-24 (85¢) ( LI 2023/D12 ) Per kilometre rates 2022-23 (78¢) ( F2022L00813 ) Per kilometre rates 2020-21 and 2021-22 (72¢) ( MVE 2020/1 ) Per kilometre rates 2018-19 and 2019-20 (68¢) ( MVE 2018/1 )

Motor vehicle cents per kilometre rates – 2015-16

Per Km rate for 2015-16 is 66 cents per km , which also applies for 2016-17 and 2017-18 (up to 5,000 km) regardless of engine size.

From 1 July 2015 a single flat rate per business kilometre is used for the cents/km claim method – regardless of engine size. The amending legislation is here .

The rates set in future years are intended to more closely reflect the actual operating cost of cars.

The claim is made out by first selecting the applicable Rate per Km, and then multiplying that by the number of kilometres (up to 5,000):

$Claim = Rate (cents) x Kms

Motor vehicle cents per kilometre rates – 2014-15

Motor vehicle cents per kilometre rates – 2013-14, per km claims for 2008-9, 2009-10, 2010-11, 2011-12 and 2012-13.

This page was last modified 2024-05-01

How To Calculate Your Car Expenses

Car and Travel Expenses , Taxes

If you use your own car for work purposes, you can claim a deduction using the cents per kilometre method or logbook method. If you use someone else’s car for work purposes, you can only claim for direct costs you pay for – such as fuel.

You can claim your vehicle expenses if:

✅ You use your car in the course of performing.

✅ Your work duties you attend work-related conferences or meetings away from your normal workplace.

✅ You travel directly between two separate places of employment and one of the places is not your home.

✅ You travel from your normal workplace to an alternative workplace and back to your normal workplace.

✅ You travel from your home to an alternative workplace and then to your normal workplace.

✅ You perform itinerant work.

You can’t claim your vehicle expenses if:

❌ You can’t claim a deduction for normal daily journeys between home and work except in limited circumstances where you carry bulky tools or equipment (such as an extension ladder or cello) that: 1. your employer requires you to use for work 2. you cannot leave at work

❌ If travel is partly private, you can only claim the work-related portion.

❌ You can’t claim a deduction for car expenses that have been salary sacrificed.

❌ You can’t claim a deduction if you have been reimbursed for it.

YOU CAN CALCULATE YOUR CAR EXPENSES IN TWO WAYS: CENTS PER KILOMETRE METHOD AND LOGBOOK METHOD

CENTS PER KILOMETRE METHOD

🔘 You can claim a maximum of 5,000 business kilometres per car, using this method.

🔘 Your claim is based on 68 cents per kilometre.

🔘 You don’t need written evidence but you need to be able to show how you worked out your business kilometres (for example, by producing diary records of work-related trips).

LOGBOOK METHOD

🔘Your claim is based on the businessuse percentage of expenses for the car.

🔘 Expenses include running costs and decline in value. You can’t claim capital costs, such as the purchase price of your car, the principal on any money borrowed to buy it and any improvement costs (eg, adding paint protection and tinted windows).

🔘To work out your business-use percentage, you need a logbook and the odometer readings for the logbook period. The logbook period is a minimum continuous period of 12 weeks.

🔘 You can claim fuel and oil costs based on your actual receipts or you can estimate the expenses based on odometer records that show readings from the start and the end of the period you used the car during the year.

🔘 You need written evidence for all other expenses for the car.

Your vehicle is not considered a car if it is a motorcycle or a vehicle with a carrying capacity of:

❌ one tonne or more, such as a utility truck or panel van

❌ nine passengers or more, such as a minivan.

Keep receipts for your actual expenses. You cannot use the cents per kilometre method for these vehicles. While it is not a requirement to keep a logbook, it is the easiest way to show how you have calculated your work-related use of the vehicle.

KEEPING A LOGBOOK

Your logbook must cover at least 12 continuous weeks. If you started using your car for work-related purposes less than 12 weeks before the end of the year, you can extend the 12-week period into the next financial year.

If you are using the logbook method for two or more cars, keep a logbook for each car and make sure they cover the same period.

Your 12 week logbook is valid for 5 years. However, if your circumstances change (eg, you change jobs) and the logbook is no longer representative, you will need to complete a new 12 week logbook.

Your logbook can be electronic or paper. The example below has the details you need to keep.

CALCULATE YOUR WORK-RELATED CAR USE

Complete this section after 12 continuous weeks of logbook use

Logbook period (dd/mm/yy to dd/mm/yy)

1️⃣ Calculate the total number of kilometres travelled during the logbook period: x,xxx km

2️⃣ Calculate the number of kilometres you travelled in the course of earning your income during the logbook period: x,xxx km

3️⃣ Calculate the work-related use by dividing the amount at (b) by the amount at (a). Multiply this figure by 100.

YOUR BUSINESS USE PERCENTAGE IS: XX%

Once you’ve calculated your business use percentage, multiply it by your car expenses to figure out your claim.

Car expenses can include running costs such as fuel, oil, and servicing, registration, insurance and vehicle depreciation. You can claim fuel and oil costs based on receipts or you can estimate the expenses based on odometer records that show readings from the start and end of the period you used the car during the year.

You need written evidence for all other expenses for the car.

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Expenses for a car you own or lease

Deductions for work-related use of your own car.

Last updated 21 June 2023

Claiming a deduction for car expenses

To claim a deduction for car expenses:

• Your vehicle must meet the definition of a car .
• You do not own or lease the car if you use it under a salary sacrifice or novated lease arrangement.
• You can claim for trips between workplaces or to perform your work duties.
• You can't claim for trips between your home and place of work, except in limited circumstances.
• You must have spent the money yourself and weren't reimbursed.
• You must have the required records.

If it's someone else's car or it's another type of vehicle (such as a truck or motorcycle), see Expenses for a vehicle that isn't yours or isn't a car .

If your travel is partly private, you can only claim a deduction for the work-related portion of your expenses.

You claim the tax deduction in your income tax return as a work-related car expense .

If you receive an allowance from your employer for car expenses, you must include it as assessable income in your tax return. The allowance amount is shown on your income statement or payment summary.

Definition of a car

To claim a work-related car expense, the vehicle must be a car.

A car is a motor vehicle that carries a load of less than 1 tonne and fewer than 9 passengers (including the driver). Motorcycles and similar vehicles are not cars.

If the vehicle does not meet this definition, you claim your work-related expenses using the approach for a vehicle that isn't a car .

You must own or lease the car

To claim car expenses you must own or lease the car, or hire it under a hire-purchase arrangement.

You can't claim running costs for a car you use under a salary sacrifice or novated lease arrangement. In this situation the car is usually leased by your employer from a financing company, and your employer typically pays for the running costs and claims deductions. You can claim additional expenses, like parking and tolls associated with your work use of the car.

If you use a car owned by a family member, and you can show there is a private arrangement that made you the owner or lessee of the car (even if you aren't the registered owner), you work out your car expenses as though it is your car.

If you don't own or lease the car (or don't have a private arrangement that makes you the owner or lessee), you claim your work-related expenses using the approach for a vehicle that isn't yours .

Example: private arrangement

When Rory turned 18 she bought a car from her parents for $1,000. She now pays the insurance, fuel, registration, and other running costs, and no one else uses the car. However, the registration has not been updated and the car is still registered in her mother's name.

Rory is eligible to claim her work-related car expenses even though the registration has not been changed to her name. She would be treated as the owner because she can show that:

• she bought the car from her parents
• she is now responsible for all of the ownership and running costs of the car.

Calculating your car expense deductions and keeping records

You use either of 2 methods to calculate deductions for car expenses:

Cents per kilometre method

• Logbook method .

Use the calculator to work out your deduction for either method.

If you are claiming car expenses for more than one car, you can use a different method for each car. You can also change the method you use in different income years for the same car.

To calculate your deduction using this method, multiply the number of work-related kilometres you travel in the car by the rate per kilometre for that income year.

'Work-related kilometres' are the kilometres your car travels in the course of earning your assessable income.

• 2023–24: use 85 cents per kilometre
• 2022–23: use 78 cents per kilometre
• 2020–21 and 2021–22: use 72 cents per kilometre
• for rates in earlier years, see Prior year tax return forms and schedules .
• You can claim a maximum of 5,000 work-related kilometres per car.
• You need to keep records that show how you work out your work-related kilometres.

If you and another joint owner use the car for separate income-producing purposes, you can each claim up to 5,000 work-related kilometres.

The cents per kilometre rate covers all car expenses, including:

• decline in value
• registration
• maintenance
• fuel costs.

You can’t add any of these expenses on top of the rate when you work out your deduction using this method.

Example: car deduction using cents per kilometre

Once per week, Johan makes a 27-kilometre round trip in his own car from his head office in the city to meet with clients. In addition, once per month he makes a 106-kilometre round trip to visit clients at another location.

When Johan consults his diary at the end of the 2022–23 income year, he works out he was at work for 47 weeks, but he missed one weekly meeting with clients as he was sick. He also determines that, although he was on leave for 5 weeks during the income year, he still made 12 × 106-kilometre round trips to visit clients.

He works out his work-related kilometres as:

Number of weekly trips × distance of weekly trip = total weekly trip kilometres

46 × 27 km = 1,242 km

Number of monthly trips × distance of monthly trip = total monthly trip kilometres

12 × 106 km = 1,272 km

Total weekly trip kilometres + total monthly trip kilometres = total trip kilometres

1,242 + 1,272 km = 2,514 km

Johan works out his deduction for the 2022–23 income year as:

2,514 km × 0.78 = $1,961

Keeping records for cents per kilometre method

If you use the cents per kilometre method, you don't need receipts.

You do need to be able to show that you own the car and how you work out your work-related kilometres. For example, you could record your work-related trips:

• using the myDeductions tool in the ATO app.

Logbook method

To calculate your deduction using the logbook method, you need to:

• keep a logbook that shows your work-related trips for a continuous period of at least 12 weeks (your logbook is valid for up to 5 income years)
• keep receipts or other records of your car expenses
• use your logbook to calculate the deductible portion of your car expenses .

Keeping a logbook

Your logbook must:

• cover at least 12 continuous weeks and be broadly representative of your travel
• include the destination and purpose of every journey, the odometer reading at the start and end of each journey, and the total kilometres travelled during the period
• include odometer readings for the start and end of the logbook period.

Your logbook is valid for 5 years. However, if your circumstances change (for example, if you change jobs or move to a new house), and the logbook is no longer representative of your work-related use, you will need to complete a new 12-week logbook.

In each of the 4 years following the first year, you need to keep:

• odometer readings for the start and end of the full period you claim
• your work-related use percentage based on the logbook.

If you are using the logbook method for 2 or more cars, keep a logbook for each car and make sure they cover the same period.

You can keep an electronic logbook using the myDeductions tool in the ATO app, or keep a paper logbook.

You must retain your logbook and odometer records for 5 years after the end of the latest income year that you rely on them to support your claim.

Keeping records of car expenses for logbook method

You can claim running costs and decline in value of your car.

You must keep:

• receipts for your fuel and oil expenses, or a record of your reasonable estimate of these expenses based on the odometer readings for the start and end of the period for which you are claiming
• receipts for other expenses for your car – for example, registration, insurance, lease payments, services, tyres, repairs, electricity expenses and interest charges
• a record of the purchase price of the car and how you work out your claim for the decline in value of your car, including the effective life and method you use.

You can't claim capital costs, such as the purchase price of your car, the principal on any money borrowed to buy it, or improvement costs (for example, adding paint protection or tinted windows).

How to calculate your deduction using a logbook

• Work out the total number of kilometres you travelled during the logbook period.
• Work out the number of kilometres you travelled for allowable work-related trips during the logbook period.
• Divide the work-related kilometres (2) by the total kilometres (1), then multiply by 100. This is your work-related use percentage.
• Add up your total expenses for the period for which you are claiming.
• Multiply your work-related use percentage (3) by your car expenses (4). This is the amount you claim as a deduction.

What do you want to find out?

Cost of driving: understanding mileage expenses in 2024.

March 6, 2024

Navigating the financial landscape of vehicle ownership and operation in today’s economy requires a keen understanding of various cost metrics, including the cost to drive per mile, wear and tear costs, and organizational costs amortization, among others. Whether you’re a business owner scrutinizing the cost of driving per mile for a fleet of vehicles or an individual trying to budget for personal travel expenses, understanding these costs is pivotal.

The IRS provides guidelines for the cost per mile to drive, known as the IRS cost per mile , which serves as a cornerstone for calculating deductible expenses related to business use of a personal vehicle. This rate reflects not just the fuel cost, but also the average wear and tear cost per mile and the depreciation of the vehicle over time .

Moreover, for businesses, the amortization of organizational costs presents an additional layer of financial planning. These costs, which include the expenses incurred during the formation of a company, such as legal fees and state incorporation fees, can be gradually deducted over a period, impacting the overall financial health of the organization. Understanding how to navigate these costs, alongside the federal cost per mile and the current cost per mile, is crucial for accurate budgeting and financial forecasting.

Whether it’s managing the direct expenses of vehicle operation or strategizing the deduction of organizational costs, a comprehensive grasp of these figures will empower drivers and business owners alike to make informed decisions, ultimately optimizing their financial resources in the dynamic landscape of 2024.

The Link Between Mileage Cost and Tax Deductions: Maximizing Your Savings

Understanding the intricate connection between mileage cost and tax deductions is crucial for anyone looking to maximize their financial savings, whether you’re a sole proprietor or managing a fleet of vehicles for your business. The IRS cost per mile offers a standard deduction rate for business-related travel, reflecting not just the fuel expenditure but also the average cost of wear and tear per mile. This deduction is pivotal for accurately reporting organizational costs and ensuring that every mile driven for business purposes contributes to lower taxable income.

Key Insights:

• Utilizing the IRS cost per mile guideline helps streamline the deduction process, offering a straightforward method to account for vehicle cost per mile.
• Properly documented mileage costs can significantly reduce your taxable income by including not only the direct expenses of operating a vehicle but also the amortization of organizational costs related to vehicle use.
• Understanding the current cost per mile and how it impacts your tax obligations can lead to more effective budgeting and financial planning, ensuring that businesses and individuals alike are leveraging tax laws to their fullest advantage.

By aligning your mileage tracking practices with tax deduction strategies, you can transform the cost to drive per mile into a powerful tool for financial optimization.

Frequently Asked Questions

Q: How do I calculate my vehicle’s cost per mile for tax purposes? A: You can use the IRS’s standard mileage rate, which factors in the cost to drive per mile including fuel, maintenance, and wear and tear. Simply multiply the total business miles driven by the IRS cost per mile rate for the year. Alternatively, you can calculate your actual expenses by tracking all vehicle-related costs and amortizing organizational costs related to the vehicle.

Q: What documentation do I need to claim mileage on my taxes? A: To claim mileage deductions, you need a detailed log of your business trips that includes dates, destinations, purposes of the trips, and the number of miles driven. Receipts for vehicle costs and records of organizational costs should also be kept to substantiate your claims, especially if you’re using actual expenses instead of the standard rate.

Q: Can I claim both the standard IRS mileage rate and actual vehicle expenses on my taxes? A: No, you must choose between using the standard IRS cost per mile rate or calculating your actual vehicle costs per mile including amortization of organizational costs. Once you opt for the standard mileage rate in the first year the vehicle is used for business, you cannot switch to actual expenses for that vehicle in any later year. Conversely, if you start with actual expenses, you may have the option to choose later on, depending on your vehicle and business use.

Q: Does commuting to work count as a deductible business mileage? A: Generally, commuting expenses between your home and regular workplace are not deductible. However, trips from your office to a secondary business location or to meet clients can count as business mileage , reducing your overall cost to drive per mile through tax deductions.

Q: Are there any limitations or caps on how much mileage I can deduct? A: While there’s no strict limit on the number of miles you can deduct, the IRS cost per mile deduction is subject to scrutiny. All claimed mileage must be business-related, and excessive deductions compared to your income level may raise flags. Ensure your documentation is thorough and reflects a legitimate business necessity to avoid issues with tax authorities.

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Maintenance and Its Role in Fuel Economy

In the grand journey of 2024, where fuel prices and environmental concerns are more pressing than ever, vehicle maintenance has emerged as a hero in the quest for fuel efficiency.

It’s not just about keeping your car running smoothly; it’s about making every drop of fuel count. Let’s delve into how regular maintenance can play a pivotal role in enhancing your vehicle’s fuel economy, ensuring that your ride remains as efficient as possible.

The Golden Trio: Tires, Oil, and Air Filters

Believe it or not, some of the most straightforward maintenance tasks can have the most significant impact on your vehicle’s fuel efficiency.

Tire Pressure: Underinflated tires can reduce fuel economy by up to 3% per tire. Keeping them inflated to the manufacturer’s recommended level not only saves fuel but also extends the life of your tires.

Engine Oil: Using the manufacturer-recommended grade of motor oil can improve your fuel economy by 1-2%. Modern engines are designed to operate efficiently with specific oil viscosities.

Air Filters: A clean air filter allows your engine to breathe easier, improving performance and fuel economy. A dirty filter can significantly decrease air flow to the engine, reducing efficiency.

Regular Check-Ups: The Secret to Longevity

Just like humans, vehicles benefit greatly from regular check-ups. These not only keep your car running efficiently but also catch potential issues before they become major problems.

Key Maintenance Checks:

• Spark Plugs: Faulty spark plugs can reduce fuel efficiency by up to 30%. Regular checks ensure your engine is firing on all cylinders.
• Fuel System: Keeping your fuel system—including the fuel injectors—clean ensures optimal performance and efficiency.
• Battery: A struggling battery can force your vehicle to work harder, impacting fuel efficiency. Ensure it’s checked and replaced as necessary.

FAQs: Keeping Your Ride Fuel-Efficient

Q: How often should I perform these maintenance tasks? A: Your vehicle’s owner manual is the holy grail for maintenance schedules. Generally, tire pressure should be checked monthly, oil changes typically occur every 5,000 to 7,500 miles, and air filters should be checked at least every 15,000 miles. However, these intervals can vary based on your vehicle and driving conditions.

Q: Can regular maintenance improve my car’s resale value? A: Absolutely! A well-maintained vehicle not only runs more efficiently but also has a higher resale value. Regular maintenance records can be a significant selling point for potential buyers.

Q: Is it worth using premium fuels for better fuel economy? A: This depends on your vehicle. Some high-performance vehicles recommend or require premium fuel for optimal performance and efficiency. However, for most vehicles, using regular unleaded gasoline is perfectly fine and won’t negatively impact fuel economy. Always refer to your vehicle’s manual for guidance.

Fuel Prices: Trends and Predictions for 2024

In the roller-coaster world of fuel prices, 2024 has already thrown us a few loops and turns. Understanding these trends and what they mean for your wallet can be as crucial as knowing how to squeeze every mile out of a gallon of gas. So, buckle up as we navigate through the current landscape of fuel prices, uncovering what drives changes and how you can stay ahead of the curve.

The Driving Forces Behind Fuel Prices

Several key factors influence the cost of fuel, from geopolitical tensions to environmental policies, and even technological advancements. Here’s a quick breakdown:

• Global Oil Supply and Demand: The classic economic principle of supply and demand significantly affects fuel prices. Any disruption in oil-producing regions can lead to price spikes.
• Geopolitical Events: Political instability in oil-rich regions often results in fluctuating fuel prices due to potential supply disruptions.
• Environmental Policies: Initiatives aimed at reducing carbon emissions can affect fuel prices. For example, taxes on carbon emissions can lead to higher fuel prices as a way to encourage reduced fossil fuel consumption.
• Technological Advances: Innovations in energy extraction and fuel efficiency can impact oil demand and, subsequently, prices.

Predictions for 2024 and Beyond

Forecasting fuel prices is notoriously challenging, but current trends suggest a few possible directions for 2024:

• Gradual Increase in Prices: With the global economy recovering, demand for fuel is expected to rise, potentially pushing prices up.
• Renewable Energy Impact: As renewable energy sources become more prevalent and cost-effective, the demand for fossil fuels may decrease, potentially stabilizing or even lowering fuel prices in the long term.

FAQs: Navigating Fuel Price Trends

Q: How can I keep track of fuel prices? A: Numerous apps and websites provide real-time fuel price information, helping you find the best prices in your area. Staying informed can help you fill up smarter and even time your purchases to when prices are typically lower.

Q: What’s the best way to budget for fluctuating fuel prices? A: One approach is to calculate your monthly fuel costs based on the higher end of the price spectrum. This way, if prices drop, you’ll have extra savings, and if they rise, you’re already prepared.

Q: Can fuel-efficient driving really offset rising fuel prices? A: Absolutely! Adopting fuel-efficient driving habits and maintaining your vehicle can significantly reduce your fuel consumption, helping to mitigate the impact of rising fuel prices.  

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Leveraging MileageWise for Tax Deductions: A Smart Strategy to Reduce Mileage Costs

In 2024, savvy drivers and business owners are always on the lookout for intelligent ways to reduce their mileage costs. One such method that has garnered attention is the strategic use of MileageWise, a comprehensive tool designed to optimize and legitimize your mileage logs for tax deduction purposes. Understanding how to effectively use MileageWise can turn your everyday driving into significant savings come tax season. Let’s explore how this tool can be a game-changer in managing your mileage costs.

Streamlining Mileage Tracking

MileageWise stands out for its ability to simplify the once-tedious task of tracking every mile driven for business purposes. With its user-friendly interface and intelligent features, users can ensure that no trip goes unlogged and no deduction is missed.

Key Features of MileageWise:

• Automatic Trip Logging: Utilizes your smartphone’s GPS to automatically record trips , ensuring accuracy and completeness.
• Past Mileage Recovery: Forgot to log a trip? MileageWise’s unique feature allows users to reconstruct past journeys accurately, maximizing your deductions.
• IRS-Proof Reports: Generates detailed mileage logs that comply with IRS requirements , minimizing the risk of audits.

Maximizing Your Deductions

By accurately tracking your business mileage, MileageWise not only helps in reducing your taxable income but also in increasing your tax return. The IRS offers a standard mileage rate deduction for every business mile driven, and with MileageWise, you can effortlessly capture every eligible mile.

How MileageWise Enhances Deductions:

• Detailed Documentation: Provides the detailed documentation required by the IRS, including dates, miles, and purposes of trips.
• Maximize Every Mile: Ensures you’re claiming the maximum deduction possible by meticulously recording all business-related mileage.
• Educational Resources: Offers insights and tips on maximizing deductions and staying compliant with tax laws.

FAQs: Making the Most of MileageWise for Tax Deductions

Q: How does MileageWise ensure my mileage logs are IRS-compliant? A: MileageWise adheres to IRS requirements by capturing all necessary data points for each trip, including the date, purpose, and start/end locations. Its reports are designed to meet IRS standards, providing peace of mind and audit-proof documentation.

Q: Can MileageWise track mileage for multiple vehicles and drivers? A: Yes, MileageWise can accommodate businesses of all sizes, from single users with one vehicle to companies with multiple vehicles and drivers . It’s an ideal solution for ensuring comprehensive mileage documentation across a diverse fleet.

Q: What if I forget to log a trip? A: MileageWise’s past mileage recovery feature allows you to fill in missing trips using historical Google Maps data , ensuring that you can claim the maximum possible deduction without missing a beat.

Wrapping Up

In wrapping up our exploration of mileage costs, it’s evident that strategic management of these expenses is key to enhancing financial well-being. By understanding the nuances of the cost to drive per mile and leveraging tax deductions, individuals and businesses alike can significantly reduce their transportation expenditures.

Emphasizing the importance of maintenance, efficient driving habits, and meticulous documentation, particularly regarding the IRS cost per mile and amortization of organizational costs, not only aids in minimizing costs but also in maximizing potential tax benefits.

The journey towards financial efficiency in transportation is ongoing, blending diligence with smart decision-making. By applying the insights from this article, you’re equipped to navigate mileage costs more effectively, ensuring every mile and dollar spent contributes positively to your financial landscape. Let this be your guide to smarter travel and better financial health in the future.

Download MileageWise’s automatic mileage tracker app from Google Play or the App Store & try it for free for 14 days. No credit card required!

Similar blog posts:, tracking business expenses: your guide to financial success, expense trackers: how to simplify personal finance, mileagewise: your ally in vehicle expense tracking and savings, mileage tracker app.

This mileage tracker app knows everything other mileage trackers know. Plus, you can create mileage logs from scratch or pieces to support your past mileage claims. Create your IRS-proof mileage log in only 7 minutes/month!

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Track mileage automatically

Work-related car expenses for employees, in this article, the car allowance and the cents per kilometre method, how to log information for your work-related car expenses, will your mileage reimbursement be taxed.

Employers will often reimburse employees as they incur work-related car expenses for business-related driving. While employers can decide themselves how to reimburse these expenses, they do follow rules set by the ATO you should also be aware of.

With Driversnote you can share your vehicle log book with the ATO or your employer at the touch of a button. Try the logbook app for free. 

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Your employer will likely use one of these two methods of reimbursing you for your work-related car expenses. They differ in their types of compensation and payout structure.

Car allowance

If you get an ATO car allowance from your employer, it needs to be shown on your payment summary, as allowances are considered taxable income. You can use the allowance to purchase a vehicle, keep it for expenses associated with your current vehicle or spend it in any other way you see fit. The car allowance offers employees the highest level of flexibility when it comes to spending it.

When you receive a taxable car allowance, you can still deduct your business-related driving expenses at your tax return. The deduction is meant to cover the costs of running your vehicle, such as fuel, oil, tyres etc.

In case you are not reimbursed for the car operating expenses, you can claim them from the ATO on your annual tax return. You will be able to use either the cents per km method or the logbook method to deduct your eligible work-related car expenses. Read more about deducting motor vehicle expenses from the ATO .

The administrative burden of paying an allowance and accounting for all expenses afterwards can be cumbersome for a company. Instead, many employers provide a cents per kilometre rate as reimbursement. Under a cents per kilometre reimbursement arrangement, you are reimbursed at a specific rate for each kilometre you drive for business.

Why is car allowance taxable?

Car allowances are taxable because they are considered an employment benefit. You don't need to provide proof of kilometres you've driven for work to receive it, and can use it as you see fit e.g. it is not a justified reimbursement to remain untaxed.

What tax do you pay on car allowance?

Car allowance is a benefit included in your income statements or payslips, and is taxed at your income tax rate.

The cents per kilometre reimbursement

The simplest mileage reimbursement arrangement is to use a flat rate per kilometre driven. It is supposed to cover all work-related car expenses. That's what the ATO’s rate does; it is meant to cover both the costs of owning (fixed costs) and driving (variable costs) your vehicle for business-related travel.

Keep in mind that your employer can set any rate they like - they do not have to use the ATO’s rate. For rates higher than the ATO’s standard per kilometre rate, the excess is taxed as part of your income.

See the new cents per km 2023 rate , applicable for the 2023/2024 tax year.

There's a lot to be said for using a standard rate, chief among them that it's simple and avoids a fairly big administrative burden.

The vehicle you use

If you use your own car (including a leased or hired car under a hire-to-purchase agreement), you can claim all work-related travel expenses from your employer or on your tax return. The two most common methods for employee reimbursement are a cents per kilometre rate or a car allowance.

If you use someone else's vehicle , i.e. a company car for work purposes, you will be able to claim only the actual expenses you have covered for operating the car (such as fuel, maintenance and parking) as a work-related travel expense from your employer or on your tax return. You won’t be able to use the cents per km rate, as it accounts for the cost of owning a vehicle.

There are no exact requirements for how you keep track of travel as an employed individual. Your employer might require you to use a certain method or provide certain records, and they need to inform you of it. A lot of people have to choose for themselves.

However, if you claim work-related car expenses from the ATO on your tax return, you need to adhere to the requirements for a logbook based on the method you use.

Most people use a mobile application to both track their trips and generate reports for them. Other alternatives are spreadsheets, like Excel or Google Sheets, that you can share with your manager and/or accountants, but then you might need to take down odometer readings every trip to figure out your mileage accurately.

This depends on how your employer processes your claim. 

• If your employer provides an allowance for car expenses, this would be taxed as it is considered a benefit and needs to be declared as income.
• If your employer reimburses your specific car expenses and they are taxed as a part of your income, you can claim these as a deduction in your tax return.
• If your employer reimburses your specific car expenses and these are not taxed, you cannot claim a deduction as you have already been fully reimbursed by your employer.

How to automate your mileage logbook

ATO Mileage Guide

• For Self-Employed
• For Employees
• For Employers
• The Cents per Kilometre Method
• The Logbook Method
• ATO Log Book Requirements
• Claim Car Expenses In 5 Simple Steps
• Calculate Your Car Expenses Reimbursement
• ATO Car Expenses Deductions
• Car Fringe Benefits Tax
• Is Mileage Reimbursement Taxed?
• Historic Cents Per KM Rates
• ATO Cents Per KM Rate 2021/2022
• ATO Cents Per KM Rate 2020/2021

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We explain how to calculate your cars running costs. You need to include fixed expenses & the variable cost per km to run a car. All explained here!

How to easily calculate your car's running costs

We all know that owning a car isn’t cheap – as if the initial purchase price weren’t bad enough, you then have registration, insurance, fuel and servicing bills to pay every year. It doesn’t take long for it to all add up to a pretty hefty sum. But do you know exactly how hefty that sum is?

If you only drive once a week to pick up some groceries, your supermarket run could be costing you over $100.

(And that doesn't even include the bread and milk.)

Don't believe me? Let's do the maths and find out for sure.

To really understand how much your car is costing, you need to account for your car’s standing costs, as well as its running costs.

Standing costs are the fixed expenses you have for your car , regardless of how often your drive your car – things like:

• registration;
• interest on your car loan; and
• depreciation.

Running costs are the expenses you incur as a result of actually driving your car – like:

• tyre wear; and
• servicing and wear and tear.

Often when we think about te cost of running a car - whether we're using our own car or lending it to a friend - we only take into account the fuel costs. Which makes it feel like your Saturday trip to the supermarket is pretty much free, except maybe for a few bucks' worth of petrol. Right?

Not quite. Let's get under the hood and find out what it really costs to own and run a car.

Calculating your car’s costs

To work out what your car's running costs are, it’s best to start with your standing costs as these are the same whether you drive every day or hardly ever.

The figures below are based on data from RACV and Vicroads for the cost of buying and running a new Toyota Corolla over 5 years*. To do the calculations for your car, just substitute the figures with your actual costs.

Standing costs for your car

Running costs for your car.

Running costs need to be calculated on a per kilometre basis.

This means your new Corolla is costing you $7932.94 a year.

Even if you hardly ever drive your car, it’s costing you over $5600 a year just to have it sitting around.

And that Saturday trip to the shops?

When you take into account your car’s weekly standing costs as well as the running costs to get there and back, your weekly drive could be setting you back nearly $120.

But I didn’t buy a new car!

I know what you’re thinking: everyone knows new cars are a money sink and that’s why you bought a used car instead.

That was a good move, but the sad fact is that owning a car is expensive, regardless of its age. Let’s look at the annual standing costs for a 2012 Toyota Corolla, bought second hand for $13,488 in 2018*.

7 ways to cut your car costs

Thankfully there are a few ways you can claw back some of these expenses.

1: Avoid buying a brand new car

If you’re currently in the market for a new car, try to resist the allure of the shiny brand new model in the showroom. New cars lose their value really quickly: as you can see in the example above, a used car depreciates at a much slower rate than a brand new model. Get a good deal on an older, well-maintained car and you’ll fare better when the time comes to trade it in or sell it on.

2: Don’t delay on your repayments

Repaying your car loan ahead of schedule will stand you in good stead in the long term. If you can afford to pay more off your loan each month, seriously consider this option as you’ll end up shelling out far less overall.

3: Shop around for insurance

Are you sure you’re getting the best insurance deal? Spend a little time getting quotes from three or four different insurance providers and see how they compare with your current bill. This research shouldn’t take more than an hour but could end up saving you hundreds of dollars a year. Make sure you consider all the factors that contribute to cheaper comprehensive insurance to get the right deal.

4: Save on cleaning by taking care of it yourself

You can get some good deals on a prefessional car clean, but it really doesn't take long to do it yourself. In fact, you can do it home with these car detailing tips . You'll just need to invest in a few good quality car cleaning products. ALternatively you can give your car a prety good clean for just a few dollars at your local hand car wash.

5: Strive for fuel efficiency

Fuel costs fluctuate from day to day, but there are some simple things you can do to make your tank last as many kilometres as possible. Maintaining your car’s recommended tyre pressure and not carrying around unnecessary clutter in your boot will keep your engine running to maximum efficiency. A lesser-known tip is to get fuel efficient tyres. The next time you need a new set – this could shave up to 10% off your fuel costs.

6: Keep your tyres in good condition

Replacing your tyres can be really expensive, but there are some simple things you can do to keep them lasting as long as possible: check your tyre read regularly, keep them out of the sun, and keep them aligned correctly to extend their lifespan. Learn more about how to make your tyres last longer

7: Put your car to work

If your car is like most cars in Australia, it probably sits idle for about 97% of the time. When you consider how much you’re paying to keep your car sitting around doing nothing like that, it really hurts doesn’t it?

The good news is that you can make the most of your car’s free time and get it earning its keep. The two main ways to make money from your car are to drive for Uber or another ridesharing service , and to rent your car out .

To drive for Uber, you’ll need to have a car that’s no more than 10 years old, be at least 21 years old, have an unrestricted licence and be listed as an insured driver for your car. How much money you’ll make depends on your location, the times you’re available to drive and your car’s running costs.

As long as your car is in decent condition, a good location and you’re willing to do a little housekeeping, you can rent it out when you aren’t using it yourself. There are a few different options for renting your car out in Australia: Uber Carshare, Carhood and DriveMyCar . Each operate slightly differently so it’s important to consider which will work best for you.

Uber Carshare allows you to rent out your car when you aren’t using it to a community of approved and trusted borrowers.

You’ll earn money for the time your car is rented, and the distance borrowers drive. For every kilometre a borrower drives in your car, you’ll be paid your chosen distance rate. This would more than the cover the 15.41c/km running costs of the Toyota Corolla above, leaving a little extra in the kitty to cover your own driving.

You set your own hourly and daily rates, with this income going a long way towards offsetting your car's standing costs. In fact, the average owner makes around $3,500 a year, drastically reducing the cost of owning a car.

Joy rents out her silver Yaris in Sydney and loves meeting people in her community. “Renting my car out is a great way to meet local people. It feels good to give back to the community.” For Angie , renting her car out gets it paying for itself. “I much prefer having my car out and about earning money for me than costing me money!”

Renting your car is pretty easy and doesn’t take too much time. If you want to give it a red hot go, there are a few things you need do to maximise your earnings: keep your car’s calendar up to date, keep your car clean, and be proactive in contacting your borrowers before and after each booking.

Sharing your car with your neighbours is an easy way to earn passive income and get your car paying for itself. And with every share car taking up to 10 individual cars off the road, you’ll be helping your community and the environment as well.

*Cost assumptions

• Registration and CTP insurance: quoted on Vicroads website for a small car's annual registration/CTP fee (March 2018) Initial purchase price (new car): based on figures from RACV
• Initial purchase price (used car): based on advertised price for a 2012 Totyota Corolla on carsales.com.au (March 2018)
• Registration and CTP insurance: quoted on Vicroads website for a small car's annual registration/CTP fee (March 2018)
• Comprehensive insurance: quoted by RACV for a 2018 Toyota Corolla, with the youngest driver a 30 year-oldmale (March 2018)
• Roadside assistance: price quoted for RACV Roadside Care for a Blue member (March 2018)
• Interest (new car): based on figures from RACV
• Interest (used car): quoted by RACV, borrowing the full initial purchase price, with monthly repayments over 5 years, for an RACV Blue member (March 2018)
• Depreciation (new car): based on figures from RACV
• Depreciation (used car): average annual loss of value over five years based on figures from the ATO’s depreciation and capital allowances tool
• Running costs: based on figures from RACV*

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• Fuel Cost Calculator

Fuel efficiency varies from one vehicle to another. An online fuel cost calculator serves the purpose of calculating an estimated trip cost given a vehicle's mileage, distance travelled and prefered fuel type over a stipulated period of time.

How To Use A Fuel Cost Calculator?

An online fuel cost calculator helps estimate fuel cost under various transportation modes and aids in financial and budget planning. A vehicle's daily, monthly, and yearly fuel costs will automatically appear in the table. The calculator helps in understanding the per kilometre fuel cost based on the distance and mileage of a vehicle.

Users need to determine the price of petrol, diesel per unit in their area. Vehicle’s mileage depends on the type of fuel. One also needs to know how many kilometres (km) per unit of petrol or diesel the vehicle will achieve. This figure will be presented in kmpl (kilometres per litre) for petrol and diesel vehicles. Once you have the mileage, distance travelled and the fuel cost, the fuel expenditure can easily be calculated on a daily, monthly and yearly basis.

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Fuel Cost Calculator India

In this fuel cost calculator, you can check and compare the average daily, monthly, and yearly fuel costs of a petrol car, a diesel car or truck or a CNG vehicle and compare it with another vehicle of a different fuel type. You can also edit the fuel price to better align it with your local gas station or fuel station and enter the fuel efficiency or gas mileage figure to get a daily, monthly and yearly estimate of the fuel (petrol, diesel, CNG) cost in India.

The India fuel price mentioned on this page is for representation only. You can change it to reflect a more accurate value in your region

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• Check Your Car Mileage With Our  Car Mileage Calculator
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Fuel Cost Calculator FAQs

In our fuel average calculator tool for India, you just need to enter the approximate mileage or fuel economy you expect from your car and the distance you intend to travel for the trip. If you select the Daily tab, then the daily fuel cost in the table below will show the cost of fuel for your trip.

There are a few benefits of using a fuel (petrol, diesel, CNG) cost calculator India, such as:

• Helps you plan your trip budget : Knowing the estimated average cost of fuel for your trip can help you plan your budget and expenses accordingly.
• Helps you save some cash : If our fuel cost calculator encourages you to choose a fuel-efficient vehicle, then you also save money on fuel costs.
• Helps save the planet : Choosing a fuel-efficient vehicle also means you will burn less fuel during the trip. So, you also end up saving the planet.

Here are the steps to calculate the petrol/diesel/CNG cost for a single trip:

• Find out the average cost of petrol or diesel fuel per litre in your city or locality. For CNG, which sells by weight, you'll need the cost per kilogram.
• Second, you need the fuel economy mileage or the distance you are expecting the car to cover in one litre of fuel. For petrol or diesel cars, this value is in kmpl and for CNG cars, it’s in kmpkg.
• Once you have the gas mileage and fuel cost, divide the fuel cost by mileage to get the cost of fuel per kilometre.
• Finally, multiply the cost per kilometre with the distance you intend to cover during the trip. This will give you the final fuel cost you might incur for your road trip with your gasoline, diesel or CNG car.

To calculate the per-kilometre fuel cost, you need to divide the fuel cost in your area by the gas mileage or fuel efficiency you're getting or expecting from your vehicle.

Formula to calculate fuel cost per kilometre : Fuel cost per Kilometre = fuel cost (petrol/diesel/CNG) per litre/mileage or fuel economy.

The final fuel price you pay at the fuel station depends on several factors such as:

• Crude oil price per barrel in the international market
• Currency exchange rates against the US dollar (Only applicable for countries other than the USA)
• Local taxes depending on country- and region-specific policies
• Shipping costs to your fuel or gas station
• Fuel additives such as detergents, ethanol, stabilisers, and antifreeze specific to the climatic and driving conditions in India

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How to plan a road trip, from cross-country journeys to weekend getaways

Driving is embedded into American culture, which is why road-tripping is so popular across the U.S. Whether you're looking to visit cities for history and culture or national parks for access to the great outdoors, a road trip can take you there. If you're not sure where to start, here's how to plan a road trip.

In this post

How do you plan a road trip for beginners?

When is the best time to start planning a road trip, how many days should you plan for a road trip, how to determine the best itinerary to take, how to choose when to take a road trip, how to plan a road trip on a budget, what is an appropriate/realistic driving time for each section of the trip, what are the best road trip tools/apps to use, what are the essentials to buy and pack, what are the main steps in the road trip planning process.

If you've never planned a road trip before, there are a few things you'll want to discuss with your travel companions before you start crafting a turn-by-turn itinerary. Start with where you want to go. We're talking big picture, like a region or a state, not every single stop along the way (we'll offer tips for how to plan a road trip with stops later on). Then think about how long you want to go for. And finally, consider your budget. Once you nail down those three things, you can start looking at the details.

The earlier the better! Planning a road trip can take quite a bit of time and effort, so allowing yourself at least a few weeks to put together a full itinerary is a good idea. You'll also want to leave enough time between planning and departure to get your car checked out by a mechanic. No one wants to break down on the road!

And if you're renting a car instead of driving your own, you'll want to book your rental car in advance to ensure there's inventory (say, the right type of rental car available).

The duration of your road trip is entirely up to you. The two important things to consider are where you want to go and what you want to do along the way. If you're looking for recommendations for how to plan a cross-country road trip, give yourself at least two weeks if you want to make a few sightseeing stops. If you want to take the trip at a more leisurely pace and spend more time sightseeing than driving, four weeks is more reasonable. Regional road trips, however, can be as short as a few days. Or you could really take your time and stretch them out over a week or more.

Choosing a road trip itinerary largely depends on your personal preferences, but in all cases, you should start by thinking about where you want to go, considering who you'll be traveling with. If you're planning a family road trip , that might take you to different destinations than if you were traveling with a group of friends or by yourself.

Once you have your general destination in mind, whether that's a region or a state or a full cross-country journey, you'll want to start selecting points of interest within that region. Plot these points on a map, then connect the dots! This is a good starting point for route planning, but now comes the laborious part: checking drive times between those points. It'll take a bit of finagling to create an itinerary that works in your favor.

As you're planning your road trip itinerary, you'll also need to consider your overnight locations. Some remote destinations might not have accommodations at all , and more popular accommodations may book up months in advance.

You should always consider seasonality for road trips. When you pick a destination, look at the typical weather for each season. In general, it's usually wise to avoid snowy destinations in the winter (some roads close seasonally) and extremely hot destinations in the summer (extreme heat can affect your car).

You can do a road trip on any budget, but no road trip will be free. You always need to consider the cost of gas and food. One way to save money, however, is on accommodations. Hotels are often more expensive than campsites, but campsites frequently book up in advance, particularly in the summer.

If you have more than one driver, you could take shifts and have a longer driving time each day. But an individual driver should typically not drive more than six to eight hours in one day. More experienced drivers, however, might have a higher limit of say, 10 to 12 hours. Drowsy driving is extremely dangerous, though, so make sure the drivers are well rested before each segment, and take breaks every 2 hours.

Every road tripper has their preference of apps, but these are tried-and-true favorites.

• Google Maps
• Roadtrippers
• Triptik by AAA
• iOverlander
• Atlas Obscura

Here's a quick and easy packing list for a road trip.

• First aid kit
• Tire pressure gauge
• Jumper cables
• Ice scraper (if traveling during winter)
• Portable phone charger
• Paper towels or toilet paper
• Bottled water

2 months before departure: Start looking at the points of interest you want to visit, consider the duration of your road trip, and determine your budget

1 month before departure: Get your car checked out or rent the relevant car for your itinerary and book your accommodations

2 weeks before departure: Buy the essential items

1 week before departure: Do a “test” pack to ensure everything fits in your car, or in your luggages if you are planning a road trip abroad

A road trip is an ideal way to see a destination, but it takes some careful planning to ensure you have a safe and enjoyable trip. While planning is important, always leave spare time in your itinerary. You never know what you might discover along the way!

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Reasonable per-kilometre allowance

If you pay your employee an allowance based on a per-kilometre rate that is considered reasonable, do not deduct CPP contributions, EI premiums, or income tax.

The per-kilometre rates that the CRA usually considers reasonable are the amounts prescribed in section 7306 of the Income Tax Regulations. Although these rates represent the maximum amount that you can deduct as business expenses, you can use them as a guideline to determine if the allowance paid to your employee is reasonable. The type of vehicle and the driving conditions are other factors used to determine whether an allowance is considered to be reasonable. 

The CRA considers an allowance to be reasonable if all of the following conditions apply:

• The allowance is based only on the number of business kilometres driven in a year
• The rate per-kilometre is reasonable
• You did not reimburse the employee for expenses related to the same use of the vehicle. This does not apply to situations where you reimburse an employee for toll or ferry charges or supplementary business insurance, if you determined the allowance without including these reimbursements

When your employees fill out their income tax and benefit return, they do not include this allowance in income.

Reasonable allowance rates

For 2024, they are:

• 70¢ per kilometre for the first 5,000 kilometres driven
• 64¢ per kilometre driven after that

In the Northwest Territories, Yukon, and Nunavut, there is an additional 4¢ per kilometer allowed for travel.

For prior-year rates, see Automobile allowance rates .

You own a consulting firm. You have ten employees and four out of ten are engineers and are often on the road. The company does not own any vehicles. The engineers use their own vehicles when they are on the road for work. The company pays them an allowance based on the reasonable per-kilometre rate prescribed in section 7306 of the Income Tax Regulations.

In this example, the allowance is not considered a taxable benefit because: 

• the allowance is based on the number of business kilometres driven in a year
• the rate per kilometre is considered reasonable
• the employee is not reimbursed for expenses related to the same use of the vehicle

The allowance should not be included in the employees' income.

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How much your car is costing you per mile.

One of the advantages of working remotely is the presumed cost savings . That includes money saved on childcare, eating lunch out, a work wardrobe and commuting.

Check Out: Buying a Used Car — The Best Age and Mileage To Get Great Value

Read Next: How To Get $340 Per Year in Cash Back on Gas and Other Things You Already Buy

Just how much does it cost to commute — or even just to drive your car anywhere? According to the U.S. Department of Energy, the average cost per mile of driving a car is $0.58, per the Calculator Academy. The DOE estimates the average driver covers about 13,500 miles per year – which means the total annual cost for driving is around $7,800.

It’s important to remember that number is based on the average cost of owning and operating a vehicle — including depreciation, maintenance, insurance and fuel and oil expenses.

If you’re looking to figure out how much your car is costing you per mile, there’s a simple calculator from the Calculator Academy . You can use the basic version by entering the following pieces of information: cost of gas, MPG of car and car value.

Learn More: 6 Hybrid Vehicles To Stay Away From Buying

How To Calculate the Cost of Driving (Per Mile)

The cost per mile of driving is calculated using the following equation: CPMd=CG/MPG+(CV/25000*.03)+.05. Here’s what each part means:

CPMd is the cost per mile of driving.

CG is the cost of gas.

MPG is the miles per gallon of the car (fuel efficiency).

CV is the car value.

The formula takes into account the cost of gas, the cost of maintenance, cost of depreciation and insurance.

There are, of course, ways to help cut down the costs of driving and get the most out of your fuel. Here a few suggestions from AARP :

Driving slower can improve your fuel economy.

Making sure your tires are filled up helps maintain better fuel economy.

Keeping your car clean on the outside can help improve your fuel economy, since a mud-caked car can get you fewer miles per gallon.

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This article originally appeared on GOBankingRates.com : How Much Your Car Is Costing You Per Mile

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One of the advantages of working remotely is the presumed cost savings . That includes money saved on childcare, eating lunch out, a work wardrobe and commuting.

Just how much does it cost to commute — or even just to drive your car anywhere? According to the U.S. Department of Energy, the average cost per mile of driving a car is $0.58, per the Calculator Academy. The DOE estimates the average driver covers about 13,500 miles per year – which means the total annual cost for driving is around $7,800.

It’s important to remember that number is based on the average cost of owning and operating a vehicle — including depreciation, maintenance, insurance and fuel and oil expenses.

If you’re looking to figure out how much your car is costing you per mile, there’s a simple calculator from the Calculator Academy . You can use the basic version by entering the following pieces of information: cost of gas, MPG of car and car value.

Learn More: 6 Hybrid Vehicles To Stay Away From Buying

How To Calculate the Cost of Driving (Per Mile)

The cost per mile of driving is calculated using the following equation: CPMd=CG/MPG+(CV/25000*.03)+.05. Here’s what each part means:

• CPMd is the cost per mile of driving.
• CG is the cost of gas.
• MPG is the miles per gallon of the car (fuel efficiency).
• CV is the car value.

The formula takes into account the cost of gas, the cost of maintenance, cost of depreciation and insurance.

There are, of course, ways to help cut down the costs of driving and get the most out of your fuel. Here a few suggestions from AARP :

• Driving slower can improve your fuel economy.
• Making sure your tires are filled up helps maintain better fuel economy.
• Keeping your car clean on the outside can help improve your fuel economy, since a mud-caked car can get you fewer miles per gallon.

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• 6 Car Brands With Reliable Used Cars
• I Paid Off $89K in Student Loan Debt in 5 Years: 3 Strategies That Helped Me Do It
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How much does it cost to rent a car?

Key takeaways

• Rental car prices vary by car class and amenities, the time of year you're renting, where you're renting, and even when you book.
• Before taxes and fees, rental car base rates average about $50 to $80 a day.
• There are many ways to bring down rental car prices without sacrificing comfort while you're away.

If your next vacation includes renting a car, you might want to budget more than you think you need. Car rental prices can be stubbornly high, especially during peak travel times. There are also fees, taxes, and other costs, meaning what you pay for your rented ride might be more than you originally expected. But with a little research and smart planning, there are ways to save and rent a car cheap.

Feed your brain. Fund your future.

What is the average rental car cost?

The average cost of a rental car in the US in April 2024 was around $50 1 to $80 2 per day or about $500 per week, 3 including taxes and fees. But rental car prices can vary widely depending on a range of factors, including location, the time of year, the car type, and when you book. Also, certain car amenities and optional add-ons can increase the daily rate, as can the driver's age (the younger, the pricier) and whether there are additional drivers.

Factors that affect how much it costs to rent a car

Timing is a big factor in car rental prices. So is the location you're renting from and the options you choose. Here are some of the major elements that influence car rental prices:

• Car class. With choices ranging from no-frills economy cars to plush luxury vehicles, it's no wonder car class has a large impact on a car rental price. (Spoiler alert: If you want to rent a car cheap, a big SUV with all the bells and whistles isn't the way to go.)
• Amenities. Want GPS or Bluetooth® connectivity in your rental car? Either is likely to drive up the price, whether you opt to add these features to a lower-class model or rent a higher-class model that comes standard with them.
• When you need the car. A long weekend rental might cost you more than, say, a midweek booking. Or, if you're in town for a holiday or big annual sporting event, an influx in travelers almost certainly boosts demand—and car rental prices too. Rates tend to rise during the high-travel summer months at beach locations and during winter months at destinations like ski resorts.
• When you book. Renting a car may be one of the few occasions it pays to wait to make a reservation—as long as you aren't married to a specific type of rental car. You can often find cheaper prices closer to your travel dates when rental car agencies are especially motivated to rent out unclaimed inventory. If the location you're picking up from has enough cars on the lot, you might find a cheaper deal a week before you travel rather than a few months prior.
• Driver age. If you're under 25 years old, be prepared to shell out more money to rent a car. Rental car companies add daily surcharges for drivers between ages 18 and 24 (if they allow rentals within that age group at all) because drivers that age have less experience behind the wheel. Fees for the youngest drivers typically range from $15 to $45 4 per day, but can be as high as $85 or more per day, 5 depending on your age and rental location.
• Location . Cities across the US could offer wildly different rates for car rentals. For example, the average rate for an economy car rental from Chicago's O'Hare International Airport in February 2024 was about $40 per day, 6 while a similar rental from Los Angeles International Airport averaged $76 per day. 7 Prices can vary within individual cities as well. In one comparison from February 2024, a standard car rental from Los Angeles' International Airport averaged $10 more per day than a similar car rental from the same rental agency's downtown locations. 8
• Where you plan to return the car. Most, if not all, rental car companies will charge more if you return your rental car to a different location than where you picked it up.

How much does it cost to rent a car by class?

The type of car (or van, SUV, or truck) you choose greatly affects your overall car rental price. A minivan, for example, could cost significantly more than a midsize car. The following table shows the average cost per day to rent each of the major car class types at Los Angeles International Airport in February 2024. 9,10 Here's how the classes stack up by space—for passengers and their bags—and daily cost:

*Rental car costs were determined by averaging the daily rates for each car class at 3 major car rental companies' Los Angeles International Airport locations in February 2024, except with minivans: That daily rate was the average of 2 major car rental companies because the third didn't have any in stock. Prices don't include final taxes and fees. All rental prices assume the driver will return the car to the same location where it was picked up.

How much is a rental car in popular destinations?

Just as with real estate, a key factor in rental car prices is location, location, location. To give you a sense of how much location affects car rental prices, here are the average daily base rates to rent an economy car from 10 popular airport destinations in the US in February 2024: 11

*Costs were determined by averaging the daily rates for an economy car at 4 major car rental companies in February 2024. Prices don't include final taxes and fees. All rental prices assume the driver will return the car to the same location where it was picked up.

Hidden rental car costs

The price that pops up when you start your rental car reservation isn't the end of the story. You're likely to shell out more for extra fees, taxes, and other costs. Here are some additional charges you need to budget for:

• Equipment add-ons, like GPS, subscription radio, and child safety seats
• Insurance, but you may not need to buy this through the car rental company. Your personal auto insurance coverage might extend to rental cars. Your credit card carrier might also cover you if you pay for the rental using that card.
• Roadside assistance, though your credit card might offer this, too
• Extra driver fee—yes, you pay extra if more than 1 person will be behind the wheel during your rental period
• Gas. Prices vary across states, so do some research to calculate how much you'll spend every time you fill up the tank in your vacation locale.
• Tolls. Again, research your driving routes and what drivers are charged for taking them.
• Even if you opt out of all the extras, you still have to account for taxes and fees, such as a mandatory vehicle licensing fee, which helps the company cover its costs for registering the car. These charges might increase your daily rate total by as much as 40% from the original quoted base rate. 12

How to keep your rental car cheap

If you're hoping to reduce your car rental costs, try some of the following strategies:

• Keep it simple. Don't let that beautiful convertible lure you into spending more. Shop for one of the more affordable car classes (like economy or standard) and skip unnecessary add-ons. For instance, use your phone for navigation, so there's no need to pay for GPS.
• Pay now instead of later. Some car rental companies offer a discount on the base rate if you pay when you book, rather than when you pick up the car. If you pay in advance, make sure you read all the terms and conditions for updates and cancellations so you don't get stuck paying for a car you won't use if your plans change.
• Book early, then check back later. If you want to guarantee you'll have a car, especially during a busy travel season or a big event, car rental companies suggest you reserve a ride early. But if you book with a company that offers free cancellations, check back 1 to 2 weeks ahead of your trip to see if prices have dropped. If they have, cancel the first booking (if you've triple-checked, cancellations really are free) and make a new, cheaper one.
• Shop around. It's work, but the only way to make sure you're getting the best deal is to check prices at various car rental companies, as well as on travel price comparison sites. Keep track of each company's promotions, including email sign-up incentives and loyalty programs, to calculate where you can snag the best deal.
• Consider a car-sharing service. Car rental companies aren't the only players these days. There are car-sharing apps that let you rent locals' vehicles. This option might be particularly useful if you want a minivan or other car class that isn't well-stocked at traditional car rental places. Just read the fine print: These apps could tack on extra fees that could cost you more than renting from the big guys.
• Cash in your points. Do you have credit card points racked up? See if you can apply those points toward a rental. You could wind up getting a ride for practically nothing.
• Check your personal insurance coverage. We said it before, but we'll say it again: Your personal auto insurance coverage could extend to rental cars, so it's worth it to check. Similarly, your credit card carrier might also cover you if you pay for the rental with that card. Look into this before you buy coverage you don't need.
• Skip the rental entirely. Take a good look at how much travel you need to do by car. If you can get by with public transportation or rideshare apps, you might save money on your daily transportation costs by not renting.

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ATO Cents Per KM: 2024 Car allowance guide

What is mileage reimbursement, what counts as business mileage.

• driving to meetings or conferences that are for business but not at your typical workplace
• running errands or getting supplies for the business
• traveling from your usual workplace to a secondary or alternate place of business (i.e. a second office or a client’s office for a business meeting)
• traveling between two or more places of employment, for example, if you have more than one job
• going on customer visits

How to use the mileage reimbursement method

• how far they drove (in kms)
• the trip dates
• the trip purpose / business relation

How to use the logbook method

• operate a non-standard vehicle for business purposes, such as a van or motorcycle, or
• drive more than 5,000km for business each year,
• keeping your logbook
• keeping records and receipts of expenses
• calculating your deduction

1. Keeping a logbook.

• the odometer reading at the start and end of each trip
• the destination of each trip
• the business purpose of each trip
• total number of kilometres traveled during each period
• odometer readings for the start and end of the logbook period

2. Keeping records and receipts

• fuel and oil receipts
• registration costs
• car services and regular upkeep
• tires and general repairs

3. Calculating your deduction

To calculate the percentage of business kilometres you drove, use the following formula:, what are the car allowance rates in australia for 2024, is car allowance taxable in australia, frequently asked questions about mileage reimbursement, how many kms can you claim for reimbursement without receipts, as an employee, should i claim mileage deductions on my taxes if i drive for work, as an employer, do i have to reimburse employees for mileage at the set ato rate, what vehicle expenses are tax deductible.

• employees, if your employer doesn’t provide you with a tax-free reimbursement scheme, or
• employers, if you reimburse employees for vehicle expenses using an actual costs method.
• fuel and oil expenses
• vehicle insurances
• lease payments and interest charges
• depreciation value
• car services
• tires and repairs
• electricity charges
• capital costs, i.e. the purchase price of your car
• improvement costs, i.e. tinted windows, winter protection, etc.
• individual expenses if you’re already claiming, or being reimbursed for, mileage using a cents-per-km scheme

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Modeling the economic cost of congestion in Addis Ababa City, Ethiopia

• Open access
• Published: 19 May 2024
• Volume 13 , article number  16 , ( 2024 )

Cite this article

You have full access to this open access article

• Semen Bekele Gunjo 1 ,
• Dawit Diriba Guta 1 , 2 &
• Shimeles Damene 1  

1 Altmetric

Road traffic which results in significant time lags, increased fuel consumption, and financial losses, remains a noteworthy challenge in developed and developing countries. As a result, the Ethiopian Government and the City Administration of Addis Ababa have built extensive road networks and imposed restrictions on driving, vehicle acquisition and parking. However, despite all these efforts, drivers and passengers waste significant time on long traffic queues, resulting in unpredictable and delayed travel. The current study investigated the cost of travel time delay, vehicle operating costs, time reliability, and the factors influencing these variables. The study used questionnaires, measurements, and traffic counting techniques to collect data from nine road segments. The sample comprised 3240 participants. The cost functions of both drivers and passengers were examined using a multiple linear regression model, with estimation performed using ordinary least squares. According to the findings, the economic costs of congestion depend on the number of lanes, the length of the road segment, the volume of traffic, and the respondents’ income level. The study also revealed that travel, vehicle operation, and unreliability costs account for 74%, 6%, and 20%, respectively, of the total congestion costs.

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Public transportation and sustainability: a review, ride-hailing, travel behaviour and sustainable mobility: an international review.

The phenomenon of urbanization is occurring globally, as Farrell ( 2017 ) noted. Approximately 50% of the global populace resides in urban areas, with projections indicating a surge in this statistic, particularly in emerging economies. According to the United Nations ( 2018 ), it is projected that by 2050, the urban population agglomeration will be predominantly concentrated in Asian and African cities, constituting 90% of the total population. This will result in the addition of 2.5 billion individuals to the global urban population. Similarly, according to the United Nations ( 2019 ), the urban population in sub-Saharan and East African nations experienced a growth rate of 4% and 4.5% from 2015 to 2020, and this population is anticipated to grow at a rate of 3.7% and 4.2% from 2025 to 2030 respectively. Such a population growth along with the rapid urbanization and a strong propensity for automobile ownership leads to the spread of motorization in emerging economies (Minalu and Tekilu 2014 ). On the other hand, poor infrastructure and poor maintenance of it aggravate the growing volume of traffic, leading to congestion, pollution, and a low standard of road safety (Yilma 2014 ).

As identified by different studies, traffic congestion incurs substantial economic costs in the majority of nations. For example, Afrin and Yodo ( 2020 ) reported that in 2018, the United States incurred $87 billion in lost productivity due to congestion. According to Gabr et al. ( 2018 ), the annual total traffic cost on the primary four routes in Mansoura city, Egypt, was estimated to be 184.5 million Egyptian pounds (EGPs). In addition, traffic congestion has been prevalent in numerous metropolitan areas in sub-Saharan Africa (Gabr et al. 2018 ; Oluwaseyi 2017 ; Vencataya et al. 2018 ).There are different factors that contribute to the presence of congestion in road segments or on different routes. These include traffic volume, the capacity of the segment, the number of lanes, segment length, and modal choice (Arnott 2001 ). It also includes the time of the day, rain, occupancy (Feng et al. 2011 ), number of pedestrian crossings, percentage of heavy vehicles, average travel speed, number of crosswalks, and average headway time (Addison and Fosu 2016 ) & duration of day, travel direction, and number of road accidents (Charlotte et al. 2017 ). Ethiopia has begun a period of swift urbanization, predominantly in the metropolis of Addis Ababa. According to the United Nations Human Settlements Program (UN-HABITAT) report of 2017, the city has already encountered notable challenges regarding traffic congestion and road safety. Consequently, the daily transportation of individuals and goods within cities has become progressively intricate and arduous, leading to increased travel time and vehicular operational expenses.

In Addis Ababa, more than 600,000 vehicles, accounting for 56% of the whole vehicle fleet, are responsible for significant local air pollution and traffic congestion. Although Addis Ababa boasts an extensive network of roads, spanning around 5,000 km and consisting of asphalted, gravel and cobblestone surfaces, these roads are insufficient to accommodate the increasing transportation needs of the city, especially along the primary routes. Davis ( 2022 ) identified a total of 124 routes for Anbessa buses, 2 routes for Light Rail Transit (LRT), 1529 routes for minibus taxis, and 37 routes for Higer buses. A significant majority of the routes are located in the core areas. Approximately 70% of taxi routes are located in inner sub-cities such as Lideta, Addis Ketema, Arada, and Kirkos. Since 2014, RIDE cab and other metered taxis have been transitioning to become online door-to-door services.

In 2008, the Addis Ababa transport bureau implemented a zoning taxi system to ensure equitable transport services across various route segments and mitigate traffic congestion and related challenges. Although Addis Ababa has fewer vehicles compared to other developing cities, transit is still impacted by several factors, such as infrastructure and architectural categories. Pedestrians frequently exhibit incorrect walking behavior on road networks, leading to inefficiency and necessitating urbanization and urban development to address transportation issues. As per the Addis Ababa transport bureau, 65% of the roads lack pedestrian infrastructure. All of these factors highlight the distinctive characteristics of the transportation environment in Addis Ababa. As stated above, one of the urbanization challenges in Addis Ababa city in connection to transportation system is traffic congestion.

Sitotaw and Tekilu ( 2019 ) conducted a study to determine the overall economic cost of congestion in Addis Ababa. This study focused on the route from Megenagna to the CMC, both of which are located in the city’s eastern region. The results indicated that the total congestion cost for this 4.46 km distance was 42,897,752.15 Birr. Consequently, the mean economic loss incurred per kilometer per annum amounted to 9,618,330 Birr (the Ethiopian currency). Andarge and Teklu ( 2017 ), estimated the overall congestion costs, encompassing both the delay and wasted fuel costs incurred by passenger and truck vehicles utilizing four distinct road segments, with a total length of 1.18 km, located in the southeastern corridor of the city. The estimated total cost was 213 million Birr. The loss incurred was calculated to be 180 million Birr per kilometer. Sitotaw and Tekilu ( 2019 ) employed nonrepresentative sample to estimate the temporal value of passengers, while Andarge and Teklu ( 2017 ) accounted for full vehicle occupancy across all vehicle types when estimating the economic value, potentially inflating the overall economic cost.

Although the cost of congestion is an existing reality, the road segments considered in previous studies in Ethiopia did not go through the congestion criteria to determine the presence of congestion in the identified segments. Mohan Rao and Ramachandra Rao ( 2012 ) and Afrin and Yodo( 2020 ) identified speed reduction index, travel rate, delay rate, volume to capacity ratio, and relative congestion index as a criteria to identify the presence of congestion in road segments. The criteria have the minimum value to classify the road segments as congested or noncongested before going to any cost estimation. For example a road segment with its speed reduction index value of greater than 5 can be labeled as congested road.

There is also very little evidence in statistical modeling of the economic cost of congestion by taking into consideration explanatory variables such as volume, segment width and length, trip frequency, and modal choice that all influence the impact in some way. In addition, the socioeconomic characteristics of the respondents were not included as explanatory variables for the cost of congestion in any study to determine how individual characteristics impact economic costs. Furthermore, most studies looked at the dependability of time data(they took time delayed as dependent variable), which is part of the overall cost component, to see how different traffic variables/parameters interact with time (Addison and Fosu 2016 ; Charlotte et al. 2017 ; Feng et al. 2011 ). Moreover, there has been no research conducted that has constructed a statistical model that establishes a relationship between the economic cost of traffic congestion and the transportation and road factors mentioned as explanatory variables in Ethiopia.

Therefore, this study aims to identify the total economic cost of congestion and model the cost per the identified explanatory variables by considering one of its subcity (Kolfe keraniyo subcity). Specifically, the following questions were answered : (1) What are the travel time, vehicle operation, and unreliability costs of traffic congestion in the study area? (2) What is the statistical relationship between the drivers’ cost of traffic congestion and the traffic volume of the segment, modal choice, trip frequency, segment length and width, and socioeconomic characteristics of the respondents as explanatory variables? (3) What is the statistical relationship between the passengers’ cost of traffic congestion and the traffic volume of the segment, the modal choice, trip frequency, segment length and width, and socioeconomic characteristics of the respondents as explanatory variables?

In answering the research question described above, the city administration will be able to know the cost of congestion in the city and compare any policy measures that can be applied thereafter. For example the city administration is recently applied different policy measures including demolishing of most of the roundabout and replacing it with traffic stops, construction of pedestrian infrastructures along the primary roads, and provision of rapid bus transit services. The city administration can also use the statistical relationships to decide the best variable that can reduce traffic congestion.

Study sites and methods

Description of the study site.

Addis Ababa, the political and administrative center of Ethiopia, was founded in 1886. The municipal jurisdiction encompasses an area of 540 square kilometers, which is divided into 11 subcities and 118 woredas for administrative convenience (refer to Fig.  1 ). Geographically speaking, Addis Ababa is situated within the latitudinal range of 8°50’ to 9°06’N and the longitudinal range of 38°39’ to 38°55’E. According to a report by the transport authority of Ethiopia, the cumulative number of registered vehicles in the nation, encompassing motorbikes, was 1,071,345 in 2019. The city accounted for more than 50% of the total number of registrations in the country.

Kolfe Keraniyo is one of the eleven subcities. According to the data provided by the Addis Ababa city administration, the aforementioned subcity encompasses an area of 61.25 square kilometer and is inhabited by a population of 546,219 individuals, comprising 220,859 males and 235,360 females. The subcity is equipped with three primary entrances that facilitate the ingress of vehicles from neighboring towns.

Location map of Addis Ababa city

Methodology

Sampling technique and sample size determination.

Sampling technique.

The study area included four distinct population groups that were interconnected to estimate the economic cost of traffic congestion. The pertinent elements in this context are the various road segments or routes, the vehicles utilized for transportation, the drivers responsible for operating these vehicles, and the passengers being transported. The study area was found to contain a total of 14 routes, consisting of 7 for outbound travel and 7 for inbound travel, for a total of 36 segments. The identification of routes was subsequently conducted through a preliminary observation of the thoroughfares accessible within the subcity. The routes facilitate the transportation of commuters from the periphery of the subcity to commercial hubs, specifically the Addis subcity, Lideta subcity, Nifasilik lafto subcity, and Gulele subcity. Furthermore, they can function as a means of accessing the surrounding residential areas, namely, Woletie, Ashewa Meda, and Burayu, to the urban center of Addis Ababa.

A preliminary study was conducted to identify the segments that exhibited acceptable levels of congestion, as determined by a speed reduction index (SRI) greater than 5 from 7:00 AM to 8:00 PM (Mohan Rao and Ramachandra Rao 2012 ; Afrin and Yodo 2020 ). Census data pertaining to the identified segments revealed that a total of nine segments met the criteria for congestion. Seven of the aforementioned segments meet the criteria solely during the morning hours from 7:00 AM to 11:00 AM, while two of the segments satisfy the conditions exclusively in the evening hours from 4:00 PM to 8:00 PM. The study area did not exhibit any acceptable levels of congestion during the time period from 11 AM to 4 PM. The segments that have been identified to represent subcity traffic congestion are presented in Figs.  2 and 3 , as well as in Table  1 .

Qualified segments and traffic points in the study area (morning)

Qualified segments and traffic points in the study area (evening)

After identifying the qualified road segment, two distinct data types were gathered utilizing the segments and traffic points located at the destination site as the designated units for data collection. The initial aspect pertained to the duration necessary to traverse the entirety of the segment, while the latter was employed to enumerate and classify vehicles that traversed the endpoints within half-hour increments during peak periods, specifically from 7 to 11 AM and 4 PM to 8 PM. Vehicle occupancy rates by vehicle categories were also identified. The above procedures helped to estimate the population size at each segment which ultimately allow to select the samples.

This research employed both stratified and simple random sampling techniques to collect information from respondents. The specified segment or traffic point is utilized by two distinct groups, namely, the drivers and the passengers, who can be classified into separate strata. After establishing the appropriate sample size for each stratum, a sampling distribution was conducted to encompass drivers and passengers across all vehicle categories, with both strata being given equal consideration. The inclusion of additional drivers in the sample is imperative for addressing inquiries pertaining to the vehicle’s classification, as well as associated details such as year of production, fuel category, and fuel efficiency per kilometer.

Sample size determination.

As can be seen in Table  1 , a distinct population is associated with each of the nine segments, and as such, a representative sample was selected for each segment. The study’s sample size was determined based on Yamane ( 1967 ). According to Yamane ( 1967 ), the sample size of the population is calculated using the following formula

Where N  = population size n  = desired sample size e = the margin error in the calculation.

Therefore, the sample size of the study is given in the Table  1 .

Data collection instruments.

The study used questionnaires, measurements, and counting techniques to collect data from nine road segments.Survey questionnaires were administered to both drivers and passengers who were traveling in diverse modes of transportation. The first part of the questionnaire contains the demographic characteristics of the respondents while the second part includes information about the travel behavior and the third part contains information about the vehicle characteristics. In addition the duration required to traverse the segment was recorded on multiple occasions throughout a week, encompassing Monday to Saturday. Additionally, a tally of the vehicular traffic passing through the designated points was conducted. The study was conducted over a period of three weeks and was distributed across three distinct months of the calendar year (specifically, April 4–9/2022, May 2–7/2022, and June 6–11/2022).

Estimation of the economic cost of traffic congestion

Economic costs can be objectively measured through three distinct components: travel time, vehicle operation, and unreliability costs.

Travel Time Cost :

The amount of time forfeited due to traffic congestion can be calculated by determining the disparity between the duration of travel speed when there is congestion and the speed at which traffic flows freely in the absence of congestion. The value attributed to time is subsequently utilized to calculate the value of the time lost due to traffic congestion.

The quantification of the value of individual travel can be derived from the income section of the survey formulated and disseminated among commuters and drivers. Furthermore, data about the hourly income rate of commercial vehicles and trucks were gathered.

Therefore, the annual vehicle delay cost for passengers = daily passenger vehicle hours of delay × value of person time × vehicle occupancy × annual factor (52 weeks x 6 days-holidays) (Andarge and Tekilu 2017 ; Eisele et al. 2013 ).

Similarly, the annual delay cost for commercial vehicles = daily commercial vehicle hours of delay × value of commercial vehicle time × annual factor (52 weeks x 6 days-holidays) (Andarge and Tekilu 2017 ; Eisele et al. 2013 ).

Vehicle operating cost (VOC).

The present research utilized multiple data sources to establish usage rates for vehicle operating costs in a congested state. Then, these rates are subsequently compared with those in an uncongested system to evaluate the impact of traffic congestion on vehicle operating costs. The initial instrument employed for data collection involved examining of the knowledge and experience of drivers operating on various types of vehicles. This was done to ascertain the rate of fuel consumption per kilometer under both free-flowing and congested traffic conditions. This was accomplished through the administration of a field survey questionnaire. Next, the calculation of the consumption component was performed across various vehicle categories. Accordingly,

Annual vehicle fuel cost = Daily fuel wasted × vehicle’s category × gasoline/benzene cost × annual conversion factor (Andarge and Tekilu 2017 ; Eisele et al. 2013 ).

An alternative method of addressing the VOC involved calibrating data derived from prior investigations. Various authors have identified inefficiencies in vehicles of varying types. For example, according to the findings of the Royal Automobile Club of Queensland (RACQ) on Greener Monitoring, the average fuel consumption of vehicles under congested conditions was 30% greater than that under free-flow conditions.

The overall fuel-related operational cost can be estimated by multiplying the fuel consumption rate by the number of cars, the roadway length, and the fuel price.

Unreliability Cost:

Traffic congestion can increase travel time uncertainty, which can compel travelers to allocate more time. Several tools exist to measure reliability. These indices include the percent variation and travel time window method, 95th or other percentile travel time, as well as the buffer index (BI) and planning time index (PTI) (Chen and Fan 2019 ). The present study assessed reliability by quantifying the reliability as the standard deviation of travel time.

The total cost of variability = 1 standard deviation (STD) ×VOT ×value of reliability (VOR) × peak congested vehicle kilometer traveled.

Modeling of the economic cost of congestion

In addition to assessing the overall cost of congestion in the examined segments, this study endeavored to construct a statistical model that quantifies the economic cost of traffic congestion considering several factors, including volume, volume squared, segment capacity, frequency of trips, modal selection, segment width and length. According to the urban economic theory proposed by Richard (2001), the model to be estimated is nonlinear, posing a challenge to estimate using a multiple linear regression model. As a way out, one can change the nonlinear to linear model by substituting the quadratic part (q 2 with q*) and running a multiple linear regression model. i.e.

The reduced model is therefore .

where CP and CD are the individual congestion costs (Birr per km) for passengers and drivers, respectively; q is the traffic volume of the segment (number of vehicles passing per hour per lane); q* is the traffic volume squared of the segment (the same unit as q); w is the capacity of the segment; TF is the trip frequency of the individual using the segment (number); MC is a modal choice of the individual (for passenger: Bus, City Bus, Minibus, Midbus, Meter Taxi; for drivers: Auto, Utility, Mass, and Truck); NL is the number of the lane of the segment in which the individual was considered as a sample; SL is the segment length at which the individual was considered as a sample; INC is the income of the respondent; AGE is the age of the respondents; HS is the household size of the respondents; WEXP is the work experience of the respondents; and n is the sample size.

The assumptions of linear regression models, such as the normality and independence of the error, the inclusion of the uncorrelated predictors (no multicollinearity), constant variance (homoscedasticity), and uncorrelated errors (no autocorrelation), were tested. The ordinary least squares method was used for the estimation of the model.

Results and discussion

Descriptive statistics of the respondents.

The study planned to incorporate 3560 samples using the survey method. However, due to the methodology employed for data collection, which involved administering questionnaires to respondents on the streets and collecting completed forms on subsequent days, the response rate was 91%. A total of 3240 drivers and passengers responded to the study questionnaire. Table  2 displays the results of the characteristics of the respondents.

Segment characteristics of sampled route

The characteristics of the segments are presented in Table  3 . The segments have a minimum length of 0.88 km and a maximum length of 2.623 km.

Economic cost of traffic congestion

Travel time cost.

As shown in Table  4 , the study revealed that the mean daily time loss in the observed segments varied between 38,687 and 49,011,considering free-flow speeds of 30, 40, and 60 km/hr. However, the above scenario suggests that the per-kilometer losses fall within 2,418 to 3,063 h.

The data pertaining to the income levels of the respondents were gathered to convert unproductive hours into a monetary value. These data served as a proxy measure for the wages of the respondents and were analyzed for specific segments within the designated time frame, revealing a significant loss. Accordingly, the average daily incomes of drivers and passengers were 35 and 33 Birr, respectively (Table  5 ). A similar analysis conducted by Sitotaw and Tekilu ( 2019 ) estimated that the average income of respondents (drivers and passengers) in the city (Gurdsholla to CMC) was 32 Birr per hour, while European academic research (2015) estimated the average value of time in Ethiopia for business trips to be 19 Birr per hour. Therefore, the total economic loss in the segments was calculated by combining the waste time and the average income of the drivers and passengers. The results indicate that drivers incurred losses of 45.4, 51.2, and 65.3 million Birr due to time wastage at 30, 40, and 60 km/hr speeds, respectively. Similarly 353.4, 398.7, and 414.4 million Birr have been expended as a result of passenger traffic congestion, with the same speed scenarios of 30, 40, and 60 km/hr taken into account, as indicated in Table  5 .

Another cost element linked to travel time pertains to the expenses incurred during a business trip. The estimation identified this component, which involved segregating vehicles by license plate number filtration. Accordingly, following the Ethiopian Transport and Logistics Authority plate number assignments, in this research taxis, private vehicles (predominantly automobiles), business vehicles, government-owned vehicles and nongovernmental organization (NGO) vehicles are assigned plate code numbers 1, 2, 3, 4 and 35, respectively. Additionally, other code numbers are allocated for diplomats. The present analysis, which exclusively focuses on commercial vehicles estimated an annual loss of Birr 102.6 to 131.4 million (Table  6 ).

Considering the mean remuneration and assuming speeds of 30, 40, and 60 km/hour, the estimated annual losses due to time delays amount to Birr 501.4 million, 566.9 million, and 611.1 million, respectively.

Vehicle operating cost (VOC)

The survey and field counting results given in Table  7 show that the mean fuel consumption in liters per kilometer varies between 0.09 for automobiles and 0.27 for heavy trucks. The study segments exhibit a range of fuel consumption rates from 433 to 2247 L per day, resulting in a cumulative daily consumption of 8220 L. After daily consumption is extrapolated to a yearly basis, the total fuel consumption amounts to 2,465,959 L. Notably, 40% of the vehicles utilize diesel, while the remaining 60% use benzene.

Given the challenges in objectively measuring fuel loss during congestion, this study relied on drivers’ estimates of fuel loss while in traffic. Therefore, the data about driver approximations, which were gathered through a questionnaire survey, revealed an average fuel loss of 26%. Similarly, as per the report by RACQ, approximately 30% of the fuel is estimated to be wasted due to traffic congestion. Furthermore, traffic congestion accounts for 40% of the fuel cost in Dhaka city, Bangladesh (Khan and Islam 2013 ).

Considering an estimated fuel loss of 26% attributable to traffic congestion, the study segments experienced a loss of 44.9 million Birr. This translates to an annual loss of 2.450 million Birr per kilometer of driving in the segments mentioned in the study.

Unreliability cost

After determining the travel time cost, as described in the above section, the next step is to determine the cost of unreliability for each subset of the population (drivers, passengers, and commercial vehicles). According to the findings, the total unreliability cost for drivers, considering a variation of one standard deviation from the mean, was 13.6 million Birr. In a similar vein, the unreliability cost associated with the passenger was 105.7 million Birr (See Table 8 ). Finally, the cost of unreliability for commercial vehicles is 31 million Birr, bringing the total cost of uncertainty in the study segment up to 150.3 million Birr (See Table  9 ).

As shown in Table  10 , the total economic cost of traffic congestion in the study area ranged between 696.5 million and 806.3 million Birr per year, considering the three economic cost components. As expected, most of the cost components were accounted for by travel time (74%), followed by unreliability cost (20%). Finally, fuel costs make up 6% of the total congestion costs. The structure of congestion cost components varies depending on the methodology used, data availability, coverage, and the country’s or citizens’ per capita income (Andarge and Teklu 2017 ; Gabr et al. 2018 ; Sitotaw and Tekilu 2019 ; United Nations 2018 ). For example, the HDR for the Office of Economic and Strategic Analysis ( 2009 ) estimated that the overall cost of congestion in all urban areas in the U.S. was $85.4 billion. The most significant category of this cost was travel time, which accounted for $60.6 billion or approximately 71% of the total. The expenses associated with operating vehicles were identified as the second major factor contributing to the total cost of congestion, which was estimated to be $11.3 billion. Specifically, these costs accounted for 13% of the fuel cost component, while the remaining cost component represented 16%.

In a similar vein, Gabr et al. ( 2018 ) reported that the aggregate yearly cost associated with traffic congestion on the examined routes was 184.5 million EGP. The predominant component of the total yearly cost associated with traffic congestion in the research area was waiting time delays, accounting for 55% of the overall expenditure. The maintenance cost accounting for 28% of the overall yearly expenditure is mostly attributed to the substantial operation expenses associated with microbuses and minibuses. The cost associated with reliability accounted for approximately 6% of the overall annual expenditure, but the remaining expenditures, including fuel consumption, pollution, and the productivity loss resulting from injuries, constituted a similar proportion of approximately 6%.

In Ethiopia, particularly in Addis Ababa, Sitotaw and Tekilu ( 2019 ) reported that the total economic cost of congestion from Megenagna to CMC (Eastern parts of the city), which is approximately 4.46 km, was 42,897752.15 Birr. The average loss per km/year was 9,618,330 Birr, and the average speed of vehicles throughout the segment was 16.6 km/hr. This average decreased to 10.6 km/hr during the pick hours, while the findings of this study indicated that the average loss per km/per year was 41,042,133 Birr and that the average speed was 10.5 km/hr. Keeping the spatiotemporal issues constant, the traffic speeds identified for the segments in this study look similar. In addition, the average incomes of the respondents in the two studies were also nearly similar (the average income per hour in the present study was 35 and 33 Birr for passengers and drivers, respectively, while it was 32 Birr in the previous study). In relation to this, Andarge and Teklu ( 2017 ) estimated the total congestion costs, including delay costs and wasted fuel costs of passenger and truck vehicles. By using four road segments with a total segment length of 1.18 km in the southeastern corridor of the city, they estimated 213 million Birr, which is equivalent to 180 million Birr per km. The cost per km found by that study seems exaggerated compared to the findings of the current study. The main reason for this discrepancy could be the vehicle occupancy rate. A previous study considered the scenario of full vehicle occupancy, which was deemed impracticable, as demonstrated in the present study.

Regression model for the economic cost of congestion

Following the specified model in Sect. 3.2.3 and using SPSS, separate multiple linear regression models were applied for drivers and passengers. A commonly used method for standardizing datasets that display skewed variables is to implement logarithmic transformation of the data. All continuous variables were logarithmically transformed as per standard practice. Accordingly, Tables  11 , 12 , 13 and 14 show the econometric model results. Regarding the assumptions of the linear regression model, the collinearity statistics show that the data on traffic volume and traffic volume squared have a multicollinearity problem; hence, correction is needed. Accordingly, based on the importance of each variable in the model, the variable with respect to the square of the traffic volume was removed from both models, and new models were constructed, excluding this variable. For cross-sectional data, serial correlation was not a problem and was not considered in this study. Furthermore, a test of heteroscedasticity revealed that the data had no such problem as the error had no relation with the independent variables. We also conducted normality tests for the error using the Kolmogorov-Smirnov test and the Shapiri-Wilk test and found that there is no problem with it.

For the first model (driver model), depicted in Table  11 , the coefficient of determination (R-square) value of 0.927 indicates that 92.7% of the variation in the dependent variable (economic cost of congestion) was accounted for by the independent variables. With respect to the second model (passenger model), the coefficient of determination (R-square) of 00.976 indicates 97.6% variation in the dependent variable (economic cost of congestion), which accounts for independent variables and indicates a strong relationship between the predictors and the dependent variables. Therefore, the overall significance test results for both models in Table  12 also showed that the model fit well (at P  = 000).

Tables  13 and 14 show significant positive correlations between the dependent variable and the respondent income and traffic volume. On the other hand, segment length and number of lanes exhibit a significant and negative correlation with the individual congestion cost. According to both models, the analysis revealed the expected signs of the significant predictors. Although the study was performed on time reliability, which is a component of congestion, Assen and Quezon ( 2019 ) also identified volume and segment length as predictors. The direction of the relationship is the same for segment length, while the opposite is true for volume compared to the current study. An increase in the volume of vehicles traversing a specific location within an hour is suggestive of a surplus of vehicles in a queue, thereby leading to an increase in travel expenses. These points can be illustrated by two frequently occurring traffic scenarios. The first is the current traffic jam, where there are many cars but they move slowly. When these two factors are combined, the flow rate is very low. The second situation is when there is very little traffic on the road, so drivers can go as fast as they want without being bothered by other cars. The fast speeds are balanced by the very low density, which means that the flow is very low (Arnott 2001 ). In both models, the number of lanes negatively correlates with the individual congestion cost. This finding is in line with microscopic transport theory which states that as more lanes are built, drivers tend to use these alternative lanes to smooth travel and hence reduce the cost of congestion (Feng et al. 2011 ). The number of cars travelling through a certain segment also relies on how many cars travel through the opposite segment (in this study, certain traffic junctions, such as roundabouts, are staffed by traffic personnel who facilitate the flow of traffic). That is, if thereare few cars using the opposite segments, there is a steady flow in the segment, as long as other things stay the same, such as the shape of the roundabout, the number of traffic cops, the driver’s experience, and the quality of the car. The variable Income was also found significant. As income increases, so does the individual cost of congestion, as the opportunity cost of remaining in traffic increases. The segment length is negatively correlated with the individual cost of congestion. As the segment length increases, there is a stable traffic flow, as evidenced in the model. The other variables such as work experience and household size were found to be insignificant in this study.

In this study, we examined the economic cost of congestion and tried to model it at the individual level. Thus, we identified the costs of travel time, fuel, and unreliability for drivers and passengers in different groups. We also examined the relationships between the economic costs of congestion and traffic volume, the number of lanes, segment length, age, household size, work experience and income for drivers and passengers. The study’s findings indicated that a total of 696.6 to 806.3 million Birr per year were lost as an economic cost of congestion. The travel time, unreliability costs and fuel costs account for 74%, 20% and 6%, respectively. The volume, number of lanes, segment length, and income determine the individual congestion cost.

The study also have some limitation in terms of estimating the overall cost of congestion as some economic cost components such as the health cost, social cost, safety costs, environmental costs are not included in this study. In addition, we only considered the vehicle operating costs from the fuel point of view though other costs connected with it such as maintenance cost, depreciation costs, start and stop costs were not included. Though the data was collected repeatedly for three weeks in different months of the year, the result would be more accurate if we had the chance to include more weeks. There is also a limitation to incorporate some additional transport, road and traffic variables because of the resource and technology needed to trace them. Nevertheless, the study followed a strict methodology that covered the design of the survey, identification of the population, and sample selection. This methodology fosters trust in the validity of the research outcomes. Accordingly, the finding of the study aligned with the microscopic theory proposed by Richard (2001).

The identification of the economic costs can help the city administration to bench mark the present cost and compare the outcome of any policy measures by the city administration in the selected routes or road segments in the future. It also gives the chance to evaluate the impact of the mass transport service provision and the transport infrastructure provision which the government considered as a policy direction. Furthermore, the significant variables identified in the statistical modeling part dictates the policy direction to develop timely strategies for transport planning and traffic management. In addition, this work will make a small contribution in terms of addressing the lack of literature on the subject, modeling the congestion cost. This model can be further enriched by incorporating additional traffic, transport, and road variables.

Data availability

The majority of the data we use for the analysis is in the manuscript. For others, we will provide them on request.

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Semen Bekele Gunjo, Dawit Diriba Guta & Shimeles Damene

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Conceptualization, SBG, DDG. and SD.; methodology, SBG, DDG; software, SBG.; validation, SBG, DDG and SD; formal analysis, SBG.; investigation, SBG.; resources, SBG, DDG and SD; data curation, SBG.; Writing the original draft , SBG.; Writing, reviewing and editing, SBG, DDG and SD; visualization, SBG; supervision, DDG and SD. All the authors have read and agreed to the published version of the manuscript: Keywords: Semen Bekele Gunjo (SBG); Dawit Diriba Guta (DDG); Shimelis Damene (SD).

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Gunjo, S.B., Guta, D.D. & Damene, S. Modeling the economic cost of congestion in Addis Ababa City, Ethiopia. Environ Syst Res 13 , 16 (2024). https://doi.org/10.1186/s40068-024-00344-9

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