Guides · 15 October 2026

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Buying a car through your business: how the tax deduction really works

“Buy a car before 30 June” is the most common tax tip we hear in Brisbane. Sometimes it helps. Often it just swaps tax for a car repayment. Here is how it actually works.

The deduction is for business use, not the whole car

The ATO lets a business claim motor vehicle expenses it incurs for business purposes. If the car is also used privately, only the business portion counts, and you need records (usually a logbook) to back up the percentage. A car that is 60% business use gives you, roughly, 60% of the deductions.

The car limit caps depreciation

For cars first used or leased in 2026–27, the ATO’s car limit is $69,883. That is the most you can use when working out depreciation on a passenger vehicle. Buy a $110,000 car and depreciation is still worked out on $69,883. The most GST credit you can generally claim is one-eleventh of the limit, $6,353 for 2026–27, and you can’t claim back luxury car tax.

“Instant write-off” usually doesn’t apply to cars

The $20,000 instant asset write-off is for assets costing less than $20,000. Most business cars cost more, so they go into the small business pool and are depreciated over time. Our instant asset write-off guide explains the rule.

Company cars and FBT

If the business is a company or trust and the car is available for an employee’s (including a director’s) private use, fringe benefits tax can apply. Some vehicles, like certain utes and vans with only minor private use, can be exempt. Eligible electric cars may also be exempt from FBT under rules that started in 2022. This is the area where people get caught out, so check before you buy.

The cash flow trap

A worked example with simple numbers. Say a company pays 25% tax and spends $60,000 on a car used wholly for business. If, across the years, it deducts the full $60,000, it saves about $15,000 in tax. It has still spent $60,000. The car makes sense if the business needs it. It rarely makes sense as a tax strategy on its own.

Questions to ask before you sign

• Does the business actually need this vehicle, and what will the business-use percentage be?
• Buy outright, chattel mortgage, or lease? Each treats GST and deductions differently.
• Will FBT apply, and who will keep the logbook?
• What does it do to cash flow over the next 12 months?

Our vehicle lease estimate gives an indicative weekly cost for comparison.

Quick answers

Can I claim the full cost of a car through my business?

Only the business-use portion, and for passenger cars depreciation is capped at the car limit, which is $69,883 for cars first used in 2026–27.

Does the $20,000 instant asset write-off apply to cars?

Only if the car costs less than $20,000. Most business cars cost more and are depreciated over time instead.

Sources

• ATO: Car thresholds from 1 July (2026–27)

General information only. This doesn’t take your circumstances into account and isn’t tax, financial or legal advice. Talk to your accountant or registered tax agent before acting. PRM is not a registered tax agent; tax agent services are provided by Australian Tax & Super Pty Ltd (TPB 25291395).