Buying a car through your business can be a practical way to fund a vehicle you use for work. It may provide tax benefits, support cash flow and allow you to claim eligible motor vehicle expenses.

However, buying a car through the business does not automatically produce a better tax outcome. The result depends on your business structure, the type of vehicle, how it is financed and how much it is used for business purposes.

Before completing a vehicle purchase, it is important to understand who should own the car, which tax deductions may be available and whether GST or Fringe Benefits Tax could apply.

Should you buy the car personally or through the business?

A business owner may purchase a vehicle personally or have a company or trust buy or finance it.

For a sole trader, the individual and the business are not separate legal entities. The sole trader can generally claim the business-use portion of eligible car expenses through their individual tax return.

A company or trust may purchase the vehicle directly and claim eligible expenses through the entity. However, making a company vehicle available for the private use of an employee, director or their associate may create Fringe Benefits Tax obligations.

Before buying a car, consider:

• Who will legally own the vehicle
• Who will drive it
• The expected business-use percentage
• How much private use is expected
• Whether the business is registered for GST
• How the purchase will affect cash flow
• Whether the arrangement may trigger FBT

The ownership arrangement should also be reflected consistently in the registration, insurance, finance documents and accounting records.

What about the ongoing costs of using the car?

Buying the vehicle is only one part of the tax picture. If the car is used for business purposes, you may also be able to claim eligible motor vehicle expenses such as fuel, registration, insurance, servicing, repairs and depreciation.

How those expenses are claimed depends on your business structure, the type of vehicle and the amount of business use.

For more information on deductible vehicle expenses, business versus private use, cents per kilometre, logbooks and record keeping, read Car for Business Use: What Motor Vehicle Expenses Can Your Business Claim?

What about utes, vans and commercial vehicles?

The tax treatment of a ute, van or other commercial vehicle can differ from a standard passenger car, particularly when it comes to depreciation, GST and Fringe Benefits Tax.

Vehicle classification matters, and a ute or van is not automatically exempt from FBT simply because it is used for work.

If you're considering a commercial vehicle or dual-cab ute, read Commercial Vehicles: ATO & FBT Explained for more information about vehicle classification, private use and FBT exemptions.

Depreciation and the car limit

When a business purchases a vehicle, it may be able to claim depreciation for its decline in value.

For the 2026–27 financial year, the maximum value generally used to calculate depreciation for a passenger car is $69,883. This is known as the car limit.

If a passenger car costs more than the car limit, depreciation is generally calculated using the limit rather than the vehicle’s full purchase price.

For example, if a luxury vehicle costs $90,000, the business will not usually claim depreciation on the entire cost. The depreciable value will generally be restricted to the applicable car limit and then adjusted for the percentage of business use.

The car limit may not apply to certain commercial vehicles that are not designed principally to carry passengers.

Can you use the instant asset write-off?

The instant asset write-off allows eligible small businesses to claim an immediate deduction for the business portion of certain assets costing less than the applicable threshold.

The Australian Government has introduced legislation to make the $20,000 instant asset write-off permanent from 1 July 2026 for eligible small businesses with aggregated annual turnover of less than $10 million. At the time of publication, the bill is still before Parliament and had not yet become law.

Even when the $20,000 threshold applies, most new passenger vehicles will cost too much to qualify.

The threshold is based on the cost of the entire asset, rather than the amount left after applying the business-use percentage. A $40,000 car will not qualify simply because it is used 50% for business.

Vehicles costing more than the threshold may instead be depreciated or added to the small business depreciation pool, depending on the rules applying to the business. The car limit may also restrict the amount that can be depreciated.

An instant asset write-off can reduce taxable income, but it does not mean the Australian Taxation Office refunds the full cost of the vehicle. A tax deduction should not be the sole reason for making a purchase.

Can you claim a GST credit?

If your business is registered for Goods and Services Tax and buys a vehicle for business use, it may be able to claim a GST credit for the business-use portion of the GST included in the purchase price.

For example, if a vehicle is used 80% for business and 20% privately, the business may generally claim 80% of the available GST credit.

For passenger vehicles costing more than the car limit, the maximum GST credit for 2026–27 is generally $6,353, being one-eleventh of the $69,883 car limit. This cap may not apply to some qualifying commercial vehicles.

The business will generally need a valid tax invoice to claim the credit through its Business Activity Statement.

Could Fringe Benefits Tax apply?

Fringe Benefits Tax may apply where a company or other employer provides a vehicle that is available for the private use of an employee, director or their associate.

This can affect the overall tax cost of buying a vehicle through the business, so expected private use should be considered before deciding how the vehicle will be owned.

Different rules can apply to eligible commercial vehicles and some electric vehicles.

For a more detailed explanation of work vehicles, private use and FBT exemptions, read Commercial Vehicles: ATO & FBT Explained.

What about electric vehicles?

Eligible battery-electric and hydrogen fuel-cell vehicles may qualify for an FBT exemption when provided to an employee or director.

The conditions include requirements relating to when the vehicle was first held and used and whether luxury car tax was payable.

Plug-in hybrid electric vehicles generally stopped qualifying for the exemption from 1 April 2025. Transitional arrangements may apply to vehicles provided under certain financially binding commitments entered into before that date.

Even when no FBT is payable, the benefit may still need to be calculated for reporting purposes.

Should you buy, finance or lease the vehicle?

A business may pay cash and buy the car outright, take out a loan, enter into a hire purchase arrangement or lease the vehicle.

Each option can affect ownership, tax deductions and cash flow differently.

Where a vehicle is purchased using a car loan, the business-use portion of the interest may be deductible. The principal repayments are not generally deductible, although depreciation may be claimed where the business is treated as the owner.

Lease payments may be deductible to the extent that the vehicle is used for business purposes. The treatment will depend on the terms of the agreement.

Buying the car outright avoids ongoing finance costs but requires more cash upfront. Finance or leasing can preserve working capital, although the business needs to consider interest, fees, repayments and the total cost over the life of the arrangement.

What records should you keep?

Good records are essential when claiming motor vehicle expenses.

Keep records relating to the purchase and ownership of the vehicle, including the purchase contract and tax invoice, finance or lease agreement, registration and insurance documents, and evidence of any GST credit or depreciation calculation.

If the vehicle is also used privately, additional records may be required to support the business-use portion of deductions or any FBT treatment.

For detailed guidance on logbooks, business-use percentages and vehicle expense records, see Car for Business Use: What Motor Vehicle Expenses Can Your Business Claim?

What happens when the vehicle is sold?

Selling or trading in a business vehicle can create further tax obligations.

A depreciation adjustment may be required based on the amount received and the vehicle’s written-down value.

If a GST-registered business sells or trades in a vehicle used in its operations, GST will also generally apply to the sale. This can apply even when the buyer is a private individual.

For example, if the vehicle is sold for $22,000 including GST, the business would generally report $2,000 as GST on its BAS. It is worth allowing for this when setting the sale price, as the full amount received will not necessarily remain in the business.

Bonerath & Co. can help with your vehicle purchase

Buying a car through your business may offer genuine tax and cash flow advantages, but the right approach depends on your circumstances.

Before completing a vehicle purchase, it is important to understand:

• Who should own the vehicle
• Which car deductions are available
• How private use will be treated
• Whether the car limit or instant asset write-off applies
• Whether a GST credit can be claimed
• Whether the arrangement will trigger FBT obligations
• How the purchase will affect cash flow

The team at Bonerath & Co. can help you compare your options and understand the tax implications before you purchase, finance or lease your next business vehicle.

Contact the team today to discuss your circumstances.

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The information in this article is general in nature and does not take into account your individual circumstances. Tax treatment depends on factors including your business structure, the vehicle, the finance arrangement and how it is used. Seek advice from a registered tax professional before making a purchase or claiming a deduction.

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