Updated: 22 September 2026
If you use a car or other motor vehicle for business, the tax treatment involves more than simply claiming the purchase price.
Business car tax deductions in Australia can involve running costs, depreciation, GST credits, business-use percentages, record keeping and, for higher-value vehicles, luxury car tax. The rules also depend on the type of vehicle and how your business is structured.
Some limits change each financial year. Others are long-standing rules that determine what can be claimed and how the claim must be calculated.
This guide explains the main rules and includes the current 2026-27 car limits and rates.
Quick Summary
- For 2026-27, the car limit used for depreciation is $69,883.
- If a car costs more than the car limit, the maximum GST credit is generally $6,353, subject to exceptions.
- The cents per kilometre rate is 91 cents for 2026-27 and is limited to 5,000 business kilometres per car.
- The logbook method can be used to claim the business-use percentage of eligible actual car expenses.
- If a vehicle is used for both business and private purposes, only the business portion is generally deductible.
- The car limit generally applies to passenger vehicles designed to carry less than one tonne and fewer than nine passengers.
- Some utes, vans and other vehicles fall outside the tax definition of a car, so different rules can apply.
- For 2026-27, the LCT thresholds are $91,661 for fuel-efficient cars and $80,809 for other cars.
- Luxury car tax and the depreciation car limit are different rules and should not be confused.
- Records should support the business use, purchase cost, running expenses and calculation method used.
What Car Expenses Can a Business Claim?
A business can generally claim deductions for motor vehicle expenses to the extent the vehicle is used to earn assessable business income.
Depending on the circumstances, deductible costs may include fuel, servicing, repairs, registration, insurance, interest on finance, lease costs and decline in value or depreciation.
Private use is not deductible. If a vehicle is used for both business and private purposes, the claim generally needs to be apportioned.
The way the deduction is calculated depends on who owns or leases the vehicle, the business structure and whether the vehicle meets the tax definition of a car.
Good business record keeping is important because vehicle claims need evidence that supports the business-use calculation and relevant costs.
What Is the Car Limit for 2026-27?
For the 2026-27 income year, the car limit is $69,883.
This is the maximum value generally used to calculate depreciation on a car that is used for business purposes and first used or leased during the 2026-27 income year.
If the car costs more than the limit, the excess does not become an additional depreciation deduction under another depreciation rule.
The car limit is indexed, so the figure can change from one financial year to the next.
Which Vehicles Does the Car Limit Apply To?
For income tax purposes, a car is generally a motor vehicle, including a four-wheel drive, designed to carry both fewer than nine passengers and a load of less than one tonne.
This distinction matters. A vehicle marketed as a ute or commercial vehicle does not automatically fall outside the car limit.
For payload purposes, the ATO uses the vehicle’s carrying capacity. The calculation can depend on gross vehicle mass and basic kerb weight.
Vehicles designed to carry one tonne or more, or nine passengers or more, are generally outside the tax definition of a car for these rules. Motorcycles and similar vehicles are also treated differently.
Check the specifications of the actual vehicle rather than relying only on its marketing category.
How Does the Car Limit Affect Depreciation?
Buying a car for more than $69,883 does not mean the whole purchase price can be depreciated for income tax purposes.
Where the car limit applies, the depreciable cost is capped at the applicable car limit before the relevant business-use percentage is taken into account.
For example, a business may buy a passenger car for more than the car limit but use it partly for private purposes. The depreciation calculation must reflect both the car limit and the deductible business-use proportion.
The timing and depreciation method depend on the business and the applicable depreciation rules. The car limit is a cap, not a promise that the full capped amount is immediately deductible.
What Is the Maximum GST Credit on a Car in 2026-27?
If a GST-registered business buys a car for more than the car limit, the maximum GST credit it can generally claim is one-eleventh of the car limit, subject to exceptions.
For 2026-27, that maximum is $6,353.
If the vehicle is used partly for private purposes, GST credit entitlement can also be affected by the extent of creditable business use.
A business cannot claim a GST credit for luxury car tax paid on a luxury car, even where the vehicle is used for business.
GST credits are generally reported through the Business Activity Statement (BAS), so the vehicle purchase should be recorded correctly in the accounts from the start.
Car Limit vs Luxury Car Tax Threshold: What Is the Difference?
The car limit and luxury car tax threshold are not the same thing.
The car limit is primarily relevant to the amount that can be used when calculating depreciation and, in many cases, the maximum GST credit.
The luxury car tax threshold determines when LCT may apply to the supply or importation of a luxury car.
A vehicle can therefore be above the depreciation car limit without necessarily being above the relevant LCT threshold.
What Are the Luxury Car Tax Thresholds for 2026-27?
For 2026-27, the LCT threshold is $91,661 for fuel-efficient cars and $80,809 for other cars.
Luxury car tax is imposed at 33% on the amount above the applicable threshold, subject to the LCT calculation rules and exemptions.
From 1 July 2025, the fuel-efficient car test for LCT uses a fuel-consumption threshold of 3.5 litres per 100 kilometres rather than the former 7 litres per 100 kilometres.
Do not assume a hybrid or other lower-emission vehicle automatically qualifies for the higher fuel-efficient threshold. The vehicle must meet the legislative test.
For a deeper explanation of LCT, see Cotchy’s Luxury Car Tax guide.
What Is the Cents Per Kilometre Rate for 2026-27?
For 2026-27, the cents per kilometre rate is 91 cents per eligible business kilometre.
The method is capped at 5,000 business kilometres per car for the income year.
The rate incorporates the vehicle’s running costs, so you do not separately claim costs such as fuel, registration, insurance or depreciation for the same car under this method.
You still need to be able to show how you worked out the number of business kilometres claimed, even though receipts for each individual running expense are not required under the cents per kilometre method.
Who Can Use the Cents Per Kilometre Method?
The cents per kilometre and logbook methods are relevant where an individual owns or leases a car, including a sole trader, and can also apply to a partnership where at least one partner is an individual.
Companies and trusts generally claim their actual motor vehicle expenses rather than using the individual car-expense calculation methods.
Where a company or trust provides a car for an employee or director and private use is available, fringe benefits tax may also need to be considered.
This is why the business structure matters when deciding how vehicle costs should be recorded and claimed.
How Does the Logbook Method Work?
The logbook method uses the business-use percentage of the car to work out the deductible share of eligible actual expenses.
Expenses can include fuel, registration, insurance, servicing, repairs, interest or lease costs and depreciation, depending on the circumstances.
A logbook generally records the vehicle’s business and private travel for the required representative period. A valid logbook can generally be used for five years, provided the pattern of use remains representative.
If the way the vehicle is used changes materially, a new logbook may be needed.
The logbook method can be particularly relevant where business travel exceeds the 5,000 kilometre cap for the cents per kilometre method or where actual vehicle costs are significant.
Cents Per Kilometre vs Logbook Method
| Feature | Cents per kilometre | Logbook |
| 2026-27 rate | 91 cents per business kilometre | Based on eligible actual expenses |
| Kilometre limit | Maximum 5,000 business km per car | No 5,000 km claim cap |
| Receipts for individual running costs | Not required for the car-expense calculation | Required for relevant actual expenses |
| Business-use evidence | Must show how business kilometres were worked out | Logbook and supporting records establish business-use percentage |
| Separate depreciation claim | No | Included as part of eligible actual costs where applicable |
Can You Claim 100% of a Business Car?
Only where the facts support 100% business use.
Putting a car in a business name does not automatically make every kilometre or expense deductible.
If there is private use, the income tax and GST treatment generally needs to reflect that private component.
For companies and trusts, private use of a business vehicle can also create fringe benefits tax consequences.
What About Utes and Dual Cab Vehicles?
Utes and dual cab vehicles require particular care because different tax rules use different vehicle tests.
For the depreciation car limit, the important question is whether the vehicle meets the income tax definition of a car, including the load capacity and passenger limits.
A ute with a payload of one tonne or more may fall outside the car limit, but you should confirm the actual vehicle specifications.
Do not assume that every dual cab ute receives the same income tax, GST or FBT treatment.
Does the Instant Asset Write-Off Mean You Can Deduct the Whole Car?
Not automatically.
The instant asset write-off has its own eligibility requirements and asset-cost threshold. The car limit can also restrict the amount relevant to a passenger car.
A high-value passenger car does not become fully deductible simply because it is purchased through a small business.
Check the depreciation rules that apply in the year the vehicle is first used or installed ready for use.
What Records Should You Keep for Business Vehicle Claims?
- Purchase contract, tax invoice and finance documents.
- Evidence of the vehicle’s specifications where the one-tonne or passenger-capacity tests are relevant.
- Logbook records where the logbook method is used.
- Odometer records and evidence supporting business kilometres.
- Fuel, servicing, repairs, registration and insurance records where actual costs are claimed.
- Records supporting the business-use percentage.
- GST documentation and BAS records.
- Details of sale, trade-in or disposal of the vehicle.
Cotchy’s guide to business record keeping requirements explains the broader ATO record-keeping principles that apply to business transactions.
Common Business Car Tax Mistakes
- Assuming the whole purchase price is immediately deductible.
- Confusing the depreciation car limit with the luxury car tax threshold.
- Using an outdated annual car limit or cents per kilometre rate.
- Claiming private travel as business use.
- Assuming every ute or dual cab is outside the car limit.
- Claiming more than 5,000 kilometres under the cents per kilometre method.
- Claiming separate running costs after using the cents per kilometre method.
- Claiming a GST credit for luxury car tax.
- Failing to consider FBT where a company or trust vehicle is available for private use.
- Keeping inadequate records to support the business-use percentage.
2026-27 Business Car Tax Limits at a Glance
| Rule or rate | 2026-27 |
| Car depreciation limit | $69,883 |
| Maximum GST credit above car limit, generally | $6,353 |
| Cents per kilometre rate | 91 cents |
| Cents per kilometre maximum | 5,000 business km per car |
| Fuel-efficient LCT threshold | $91,661 |
| Other-car LCT threshold | $80,809 |
| LCT rate | 33% on value above applicable threshold |
Frequently Asked Questions
What is the car tax limit for 2026-27?
The car limit for 2026-27 is $69,883. It is the maximum value generally used to calculate depreciation for a car first used or leased in that income year.
What is the maximum GST credit for a car in 2026-27?
Where a car costs more than the car limit, the maximum GST credit is generally $6,353 for 2026-27, subject to the GST rules and exceptions.
What is the cents per kilometre rate for 2026-27?
The rate is 91 cents per eligible business kilometre, with a maximum of 5,000 business kilometres per car under this method.
Can I claim more than 5,000 business kilometres?
Yes, but not under the cents per kilometre method. If eligible, the logbook method may be used to calculate the business-use share of actual car expenses.
Can I claim the full cost of a car through my business?
Not necessarily. The deduction depends on the vehicle, business structure, business-use percentage and depreciation rules. The car limit may cap the depreciable cost of a passenger car.
Does the car limit apply to utes?
It depends on the vehicle. A vehicle designed to carry one tonne or more generally falls outside the tax definition of a car for the car-limit rules, but the actual specifications should be checked.
What are the LCT thresholds for 2026-27?
The 2026-27 thresholds are $91,661 for fuel-efficient cars and $80,809 for other cars.
Is luxury car tax the same as the car depreciation limit?
No. They are separate rules. The car limit affects depreciation and can affect the maximum GST credit, while the LCT threshold determines when luxury car tax may apply.
Can a company use the cents per kilometre method?
The cents per kilometre method is an individual car-expense method. Companies and trusts generally claim actual motor vehicle expenses, with FBT potentially relevant where private use is provided.
How long is a car logbook valid?
A valid logbook can generally be used for five years if it continues to represent the vehicle’s business-use pattern. A new logbook may be needed if usage changes materially.
Review the Tax Treatment Before Buying a Business Vehicle
A vehicle purchase can affect income tax, GST, depreciation and potentially FBT or luxury car tax.
The purchase price alone does not tell you what the business can claim. Vehicle specifications, business structure, private use and the applicable financial-year limits all matter.
Before committing to a significant vehicle purchase, make sure the expected tax treatment is based on the actual vehicle and how it will be used.
Cotchy provides taxation services for Australian businesses and can help explain how the relevant tax rules apply to a proposed business vehicle purchase.
For ongoing vehicle coding, reconciliations and accurate financial records, see Cotchy’s bookkeeping services.
