The Complete Guide to Claiming a Business Vehicle Tax Deduction

Future Accounting
Sep 29
4 min read

Updated: Oct 3

How to get the most out of your business vehicle tax deduction

What to know before you put that new car through the business

One of the most common questions we receive from clients, especially when they’re looking at a shiny new set of wheels is:

“Should I buy this vehicle through my business?”

It’s a great question. Like many tax-related decisions, the answer isn't always straightforward. There are definite advantages, but also a few traps and misconceptions to be aware of. Let’s break it down clearly so you can understand how a business vehicle tax deduction really works.

Common misconceptions about business vehicle tax deductions

Before we get into the technical side, let’s clear up some common myths:

“If I buy the car in the business, I can claim 100% of the cost as a deduction.” Only if the car is used 100% for business and that’s rare. Personal use always affects deductibility.
“Putting it in the business name avoids Fringe Benefits Tax (FBT).” In fact, it’s the opposite. If an employee (including you as a director or sole trader) uses the car personally, it may trigger FBT.
“I can claim back all the GST on the purchase.” Sometimes, but only up to certain limits. The GST claim is often capped under the car cost limit rules.

What counts as a motor vehicle for tax purposes

For tax purposes, the term motor vehicle usually refers to cars designed to carry less than one tonne and fewer than nine passengers. This includes most sedans, hatchbacks, and SUVs.

Why does that matter?

Because special rules apply for vehicles not classified as 'cars 'like utes, vans, or trucks used in a commercial setting. These can have different GST, depreciation, and FBT treatment, and often provide more favorable outcomes for a business vehicle tax deduction.

The car cost limit and depreciation rules

When purchasing a car for your business, keep in mind the car cost limit for depreciation and GST.

For 2024–25, the car limit is $69,674 (non-electric vehicles).

This means:

You cannot claim GST on the portion of the purchase price above this threshold.
You also cannot depreciate the amount above this threshold.

Example: If you buy a $90,000 car:

You can only claim GST on $69,674.
You can only depreciate up to $69,674.

This cap doesn’t apply to commercial vehicles that aren't “cars” by definition (e.g., a ute over one tonne capacity).

Example: $80,000 vehicle with 60% business use

Let’s walk through how the rules apply in practice.

Scenario: You purchase a new vehicle for $80,000 (non-electric) through your business. You use it 60% for business and 40% for private purposes. All running costs are paid by the business.

Step 1: Apply the car cost limit

GST input tax credit is limited to 1/11th of $69,674 = $6,334.
Depreciation is capped at $69,674.

Step 2: Apply business use percentage (60%)

GST claimable = $6,334 × 60% = $3,800
Depreciation claimable = $69,674 × 60% = $41,804

Step 3: Fringe Benefits Tax (FBT)

Because the car is also used for personal purposes, FBT applies.

Taxable value = 20% × $80,000 = $16,000
Grossed-up value = $16,000 × 2.0802 = $33,283
FBT payable = $33,283 × 47% = $15,643 annually

Step 4: Net impact

While the business can claim depreciation and GST, the annual FBT bill significantly reduces the benefit of the business vehicle tax deduction.

Business use percentage and logbooks

Here’s where many people get caught out. If you’re using the car for both business and private use - commuting, school runs, weekend trips - then only the business portion is deductible.

To maximise your business vehicle tax deduction, you’ll need to keep a logbook for at least 12 continuous weeks to establish your business use percentage. Without a valid logbook, you may be limited to a statutory estimate (often 20% or less).

Understanding Fringe Benefits Tax (FBT)

If your business buys the vehicle and allows you (or any employee) to use it for personal purposes, it may trigger Fringe Benefits Tax.

This includes:

Commuting to and from work
Weekend use
Any non-business-related travel

The cost of FBT can easily outweigh the tax savings of putting the car in the business.

You can reduce or avoid FBT in some cases, such as:

Using a vehicle that is exempt, like certain commercial utes or vans
Demonstrating 100% business use with a solid logbook
Using the employee contribution method (where the employee pays for personal use)

When buying a vehicle through your business makes sense

Buying a car in your business name might be worth it if:

The vehicle is used mostly or entirely for business
It’s a commercial vehicle not classified as a 'car'
You’ve factored in potential FBT liability
You have strong records (logbooks, travel diaries, etc.)
The cost of the vehicle is under the depreciation/GST threshold (or you’re comfortable with the limits)

Handled correctly, the right purchase structure can maximise your business vehicle tax deduction while keeping your compliance obligations under control.

Speak to us before you buy

The best advice? Talk to your accountant before you sign anything.

What looks like a great business deduction can quickly become a tax headache if the structure isn’t right. Our team will help you:

Crunch the numbers
Evaluate GST and FBT impacts
Decide if a lease, chattel mortgage, or outright purchase suits your goals
Stay compliant (and keep the ATO happy)

Thinking about buying a car? Get in contact and let’s make sure your business vehicle tax deduction works in your favor.

Disclaimer  

This article does not constitute financial advice and is for general information only. It does not take into account any individual’s personal objectives, situation or needs, and is not intended as professional advice. Any similarity to an individual’s personal circumstances and the examples provided in this article is purely coincidental. Any person acting upon such information without receiving specific advice, does so entirely at their own risk.  

Authorisation under an Australian Financial Services Licence (AFSL) is not required in the provision of this article and the author plus Future Accounting Group Pty Ltd is not acting in its capacity as an Australian Financial Services Licence holder 

Liability limited by a scheme approved under professional standards legislation.