When a business buys a car, three tax rules shape what it can claim: GST credits, depreciation and the car limit. This guide explains each in plain English, with a worked example. It is general information only. Tax depends on your situation, so confirm the details with your accountant.
The car limit
The ATO sets a limit on the cost of a car that can be used to work out depreciation each year. For 2026-27 the car limit is $69,883, and the most GST credit you can generally claim on a car above that cost is $6,353, which is one eleventh of the limit, subject to certain exceptions (ATO: car thresholds from 1 July). The limit changes each year, and it applies to cars, meaning vehicles designed to carry less than one tonne and fewer than nine passengers. Utes, vans and trucks can be treated differently.
GST credits
If your business is registered for GST, holds a tax invoice and uses a vehicle solely in carrying on the business, it is generally entitled to a GST credit for the GST in the price. If the vehicle is used partly for business, the credit is generally partial, based on the business use. For a car that costs more than the car limit, the credit is generally capped at one eleventh of the limit. You cannot claim a credit for any luxury car tax paid when you buy a luxury vehicle, even if it is used for business. The ATO explains this on its page about purchasing a motor vehicle.
Other GST points the ATO lists
- Exceptions: the full GST credit can be claimed even above the car limit in certain circumstances, such as a commercial vehicle that is not designed principally to carry passengers, a motor home or campervan, or a car held solely as trading stock.
- Leasing: if you lease a car, the GST credit on each lease payment is based on your business use and is not limited to one eleventh of the car limit.
- Second-hand cars: if you buy a second-hand vehicle from someone who is not registered for GST, and you do not plan to sell or exchange it, you cannot claim a GST credit.
Depreciation
A business can claim a deduction for the decline in value of a car over its effective life. The ATO's effective life determination for a car, meaning a vehicle designed to carry a load of less than one tonne and fewer than nine passengers, is generally 8 years, and in some cases you can self-assess a different life. Other vehicles have their own lives in the same table. For example, a light commercial vehicle designed to carry a load of one tonne or more with a gross vehicle mass of 3.5 tonnes or less is 12 years, and a truck over 3.5 tonnes is 15 years, so a ute or truck is worked out differently from a car. Under the diminishing value method, the yearly amount is the base value multiplied by days held divided by 365, multiplied by 200% divided by the effective life, which gives 25% a year for an 8-year life (ATO: prime cost and diminishing value methods). The cost, excluding GST if you are entitled to claim it, is capped at the car limit. The deduction is reduced by the extent of any private use, and it is adjusted for the number of days you held the car in the year.
A worked example
Say a GST-registered business buys a car for $60,000 including GST, which is under the car limit, and uses it 100% for business.
| Item | Amount |
|---|---|
| Price including GST | $60,000.00 |
| GST in the price (one eleventh) | $5,454.55 |
| Cost excluding GST | $54,545.45 |
| Depreciation in a full first year at 25% | $13,636.36 |
The GST credit comes back through the business activity statement. The depreciation is a deduction that reduces taxable income, so what it is worth in cash depends on your tax rate, and the first-year amount will be smaller if you held the car for only part of the year or used it partly for private purposes. These figures are illustrative only, not a quote, a forecast of tax savings or tax advice.
If the same business bought an $80,000 car, the GST credit would generally be capped at $6,353 and depreciation would be worked out on the car limit of $69,883, not on the full price.
Finance and the tax rules
How you finance the car matters for tax. With a chattel mortgage the business is the owner from day one. See chattel mortgage vs lease and novated lease vs chattel mortgage for how the structures differ. For an electric vehicle, see financing an electric vehicle for your business. Interest on a business loan may also be deductible, and your accountant can tell you how.
Keep good records
- The tax invoice showing the GST and the price.
- A logbook or other records that support your business-use percentage.
- Your finance contract and the dates you first used or held the car.
The takeaway
The car limit, the GST credit cap and the business-use share can all reduce what a business can claim on a car. Work out the numbers before you commit, and ask your accountant to confirm them. loan-o compares finance across 50+ lenders and can review any offer you already have for free. Start a free finance check; there is no credit check to enquire.
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Finance is subject to lender approval, lending criteria, terms, conditions, fees and charges. The information in this article is general and does not take into account your personal or business needs.
Last reviewed: 8 October 2026. This content provides general information only. It should not be treated as personal financial, tax, legal or credit advice.
Frequently asked questions.
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The ATO sets the car limit for 2026-27 at $69,883. It caps the cost used to work out depreciation on a car first used or leased in that income year, and the most GST credit you can generally claim on a car costing more than the limit is $6,353 (one eleventh of the limit), subject to certain exceptions.
Not in the same way. The car limit applies to cars, meaning vehicles designed to carry less than one tonne and fewer than nine passengers. Utes, vans and trucks can be treated differently, so ask your accountant how your vehicle is classified. For GST, the ATO lists exceptions where the full credit can be claimed even above the limit, including a commercial vehicle that is not designed principally to carry passengers.
No. For a car costing more than the car limit, the GST credit you can generally claim is capped at one eleventh of the limit, which is $6,353 for 2026-27, subject to certain exceptions.
Only the business-use portion, and only up to the car limit. If you use the car partly for private purposes, you can claim only the business share, and you need records such as a logbook to support it.
No. This is general information and the rules change each year. Confirm the current figures with the ATO and your accountant before you buy.
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