Claim Tax Deductions for Business Vehicles in Australia

While we definitely recommend contacting a business accountant if you wish to purchase a vehicle through your company so that you understand all of the ins and outs, we’ve taken a closer look at some of the basics in this article.

The team at Curve Accountants specialises in the provision of business accounting services for small businesses and medical practices. We are committed to supporting our clients in their business finances, helping them to grow and reach their financial goals. Contact us today to learn more.

There are several steps that you need to take to ensure that your vehicle qualifies for a tax deduction:

1. You must maintain accurate records. This includes keeping a logbook that documents the vehicle’s business use and expenses (such as fuel).
2. You need to choose the correct calculation method. There are three methods set out by the Australian Taxation Office (ATO) – the logbook method*, cents per kilometre method**, and the actual costs method***.

*The logbook method is based on the vehicle’s business-use percentage versus actual expenses.

**The cents per kilometre method sees you claim a fixed rate for each business kilometre (up to a maximum of 5000 km per year).

***The actual costs method sees you claim the actual cost of any expenses incurred based on receipts.

The structure of your business is important in determining how tax deductions can be claimed:

• Sole Traders and Partnerships
  If you operate your business as a sole trader or partnership, the correct calculation method will depend on the type of vehicle. For a car, you can use either the logbook or cents per kilometre method. For other vehicles (such as motorcycles, utility trucks, and panel vans), the actual costs method must be used.
• Companies or Trusts
  If you operate as a company or trust, you can only use the actual costs method, regardless of the type of vehicle.

Whether your business owns or leases the vehicle, you can claim running costs and depreciation. Just be aware that you may need to pay fringe benefits tax (FBT) if the vehicle is also used for private purposes.

If an employee owns the vehicle in question and you reimburse their costs or pay an allowance, you can claim a deduction on these expenses. You cannot claim depreciation, however.

Some of the deductions that can be made for vehicles used in your business, whether they’re owned by the business or not, include:

• Fuel (such as petrol or diesel) and oil
• Vehicle registration
• Repairs and servicing costs
• Insurance cover premiums
• Interest on finance loans or leases
• Lease payments
• Depreciation

It is essential that you speak with a tax accountant to determine what costs (if any) can function as tax deductions, especially if your vehicle is not owned by the business.

After you purchase a vehicle, it’s subject to general wear and tear, which results in its value decreasing with each passing year. The ATO has introduced some simplified rules for small businesses regarding depreciation in the form of an instant asset write-off. Alternatively, you can choose to use the general rules, which allow you to claim deductions at an accelerated rate.

Your tax accountant will be able to provide further guidance on which set of rules will provide the best tax implications for your business.

FBT is a separate tax that a business has to pay when a company vehicle is used for personal purposes. It applies regardless of who is using the vehicle – business owners, employees, or even associates.

There are some GST implications to consider when buying a vehicle for business use.

If your business is registered for GST, buying a vehicle under your company name will allow you to claim a GST credit on the purchase. There are, however, limits to the amount of GST that can be claimed.

For the 2024/2025 financial year, the car limit is $69,674. The maximum GST credit that can be claimed on a vehicle is 1/11th of the car limit; this is $6,334 for the 24/25 financial year. Even if the purchase cost of the vehicle is more than the car limit, you can only claim up to the GST credit maximum.

If you later decide to sell the vehicle and it’s under your company name, you will need to pay 10% GST on the sale price. This amount is not limited. 

If you need a vehicle for work, there can be benefits to purchasing one through your company. Navigating the rules for claiming tax deductions on this car, however, can be confusing. While the ATO does provide some guidelines, you’re encouraged to seek the advice of an expert tax accountant in Melbourne. The team at Curve Accountants is well-versed in claiming tax deductions for business vehicles, so let us help you get it right.

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