The Government is today releasing exposure draft legislation that will simplify and modernise the methods used for calculating work‑related car expense deductions.

The current rates and methods for calculating work-related car expenses were set in the 1980s. Nearly 30 years on, with developments in car engine technology, it is timely to update them.

From 1 July 2015, the four existing methods for calculating a deduction for work related vehicle use (cents per kilometre, log book, 12 per cent of original value and one-third actual expenses methods) will be reduced to two — the log book and cents per kilometre methods. Data from the Australian Taxation Office shows that less than 2 per cent of all work related vehicle claims rely upon the calculation methods that are being removed.

Removing these two methods is an important step in reducing the compliance burden on individuals and small business.

In addition to removing these two methods, the Government will update the cents per kilometre method by replacing the three existing rates with a single rate of 66 cents per kilometre for all engine sizes. This reflects more efficient modern engines and contemporary data on vehicle costs. The new rate of 66 cents for all cars reflects the projected average running costs of the top five most popular vehicles sold. By removing the link to engine size, all types of cars, including hybrids and electric vehicles, will be eligible to use this method. The Commissioner of Taxation will have the power to update the rate as appropriate into the future.

There is no change to the principle that work related car expenses are deductible and no impact on salary packaged cars.

Submissions are invited on the exposure draft legislation and explanatory material which are now available on the Treasury website.

Submissions close on 5 August 2015.