ATO Update: Travel expense deductions and late lodgement warnings

ATO Watch: Travel Claims, Car Expenses and Compliance

The Australian Taxation Office (ATO) has recently issued several reminders about claiming work-related expenses correctly, alongside warnings about increased compliance activity targeting businesses that fail to meet their tax and superannuation obligations.

Here’s a summary of three recent updates worth keeping on your radar.

1. Getting car expense claims right

The ATO has highlighted several common misconceptions about using the cents per kilometre method to claim work-related car expenses.

Some of the most common mistakes include:

• Home-to-work travel: Claiming ordinary travel between home and work, which is generally considered private travel.

• The 5,000 km limit: Automatically claiming the maximum 5,000 kilometres without being able to demonstrate that the travel was work-related.

• Novated leases: Claiming car expenses for vehicles provided through a novated lease under a salary sacrifice arrangement.

• Double claiming expenses: Separately claiming fuel, maintenance, depreciation or other car expenses already covered by the cents per kilometre rate.

• Mixing methods: Using both the cents per kilometre and logbook methods for the same car in the same income year.

The key reminder: Keep appropriate records of your work-related travel and ensure you understand which expenses are covered by your chosen claim method.

2. Business travel expenses – what can you claim?

The ATO has also reminded businesses to distinguish between legitimate business travel expenses and private costs.

Depending on the circumstances, deductible business travel expenses may include:

• Accommodation and meals when staying away overnight for business purposes.

• Airfares and public transport, including taxis and ride-sharing services.

• Car hire expenses.

• Fuel, tolls and parking associated with business travel.

However, private expenses are generally not deductible. These include sightseeing, entertainment, personal holidays added to business trips and travel costs for accompanying family members.

Businesses may also be entitled to deductions for work-related travel expenses paid on behalf of employees or reimbursed to them.

It’s important to remember that paying for an employee’s private travel may give rise to fringe benefits tax (FBT) obligations. Different rules can also apply to travel allowances.

The key reminder: Where business and private travel overlap, keep clear records and ensure only eligible expenses are claimed.

3. ATO increases focus on non-lodgement and the shadow economy

Beyond deductions, the ATO is continuing its compliance activity targeting businesses and individuals who deliberately fail to meet their tax and superannuation obligations.

During the 2026 income year, almost 75% of successful non-lodgement prosecutions nationwide involved shadow economy activity in Queensland, New South Wales and Western Australia.

The shadow economy includes activities such as failing to declare income, making cash-in-hand payments to avoid tax obligations and not meeting employee superannuation requirements.

The ATO has warned that deliberate non-compliance can have serious consequences beyond financial penalties, including criminal convictions that may affect business operations, borrowing capacity, insurance and overseas travel.

Melbourne hospitality businesses under the spotlight

The ATO’s compliance activity has also extended to Melbourne’s hospitality sector.

Following more than 52,000 community tip-offs nationally during the 2026 income year, ATO officers conducted more than 25 unannounced visits to Melbourne CBD restaurants, cafés and fast-food outlets on 22 and 23 September as part of Operation Tonberry.

The visits focused on suspected undeclared income, cash-in-hand payments and unpaid employee superannuation.

While the operation targeted hospitality businesses, the broader message applies across all industries: maintaining accurate records, lodging on time and meeting tax and super obligations remain essential.

Need guidance?

Whether you’re reviewing business travel expenses, preparing your tax return or ensuring your business is meeting its compliance obligations, we’re here to help.