“Can I claim the car on tax?” is one of the first questions business owners ask when buying a vehicle, and the honest answer is: usually yes, in proportion to how much the car is used for business, but what you can claim depends on how you finance it and how your business is structured. This guide explains the principles so you can have an informed conversation with your accountant. It’s general information, not tax advice; the figures and thresholds change from year to year, and your own position is something only your accountant can assess.
The short answer
If a car is used for business, the business-related costs of owning and running it are generally deductible. The catch that surprises people is that the loan repayments themselves usually aren’t, at least not in the way they expect. What’s deductible depends on the finance structure:
- Buying with a loan or chattel mortgage: you generally claim the interest on the loan and the decline in value (depreciation) of the car, not the principal repayments.
- Leasing: you generally claim the lease payments.
- Running costs: fuel, registration, insurance, servicing and repairs, at the business-use percentage.
Everything above is scaled by how much the car is actually used for business, which is where the logbook comes in.
Business use: the percentage that drives everything
A car is rarely used 100 percent for business, and the deduction follows the business share. For sole traders and partnerships, the ATO has set methods for working that out, including keeping a logbook for a representative period to establish the business-use percentage. For companies and trusts, the car is typically a business asset, but private use by directors or employees brings fringe benefits tax into the picture (more on that below). Whichever structure you’re in, keep records: a logbook and receipts are what make a claim stand up.
Financing with a chattel mortgage or car loan
The most common way businesses finance a vehicle is a chattel mortgage: you own the car from day one and the lender holds security over it. Our guide to chattel mortgages explains the structure. For tax, the general position is:
- Interest on the finance is deductible at the business-use percentage.
- Depreciation (the decline in value of the car) is deductible over time, again at the business-use percentage. In some years the ATO has offered accelerated or upfront deductions for eligible businesses, such as an instant asset write-off. Whether one applies, and the threshold that year, is exactly the kind of thing to confirm with your accountant or on the ATO website, because it changes.
- The car limit. The ATO applies a cap on the value of a car for depreciation purposes, so the deduction on an expensive vehicle is limited even if it’s fully business-use. The figure is set annually.
- GST. If you’re registered for GST, you can generally claim the GST included in the purchase price on your next BAS, subject to the car limit and business-use percentage. On a chattel mortgage that claim is typically made upfront rather than spread over the loan.
Ready to get started?
Book a chat with an Asset Finance Broker at Treadgold Finance today.
Financing with a lease
Under a finance lease, the lender owns the car and you lease it, so you don’t claim depreciation or interest. Instead, the lease payments are generally deductible at the business-use percentage, and GST is claimed on each payment rather than upfront. Some businesses prefer this for the simplicity and the regular upgrade cycle. Our guide to finance lease vs hire purchase sets out the differences, and the tax treatment is one of the main reasons to choose one over the other, so it’s worth discussing with your accountant before you sign anything.
Company cars and fringe benefits tax
If a company or trust provides a car that’s available for an employee’s or director’s private use, including driving it home, fringe benefits tax can apply to the employer. It’s a real cost that changes the maths on a company car, and it’s the reason the question isn’t just “is it deductible” but “what’s the whole-of-life cost after tax.” There are recognised ways to calculate and manage it, and some vehicle types are treated differently. This is squarely an accountant conversation, but it’s worth knowing it exists before you buy.
Why your business structure matters
The same car, financed the same way, can be treated differently depending on whether you’re a sole trader, a company or a trust: who owns it, who claims, and whether FBT enters the picture. We’ve covered that in our guide to how your business structure affects finance. It also affects the finance itself, since lenders assess a company or trust differently from an individual, and if full financials aren’t available, low doc business loans are common for business vehicle purchases.
Records that make a claim stand up
- A logbook covering a representative period, kept current
- Receipts for running costs
- The finance contract, showing interest and principal separately
- The tax invoice for the purchase, for GST
Getting the finance right first
Tax is one input into the decision, not the whole decision. The structure that’s best for tax isn’t always the one that’s best for cash flow, and the finance needs to work day to day before it works at year end. A broker can structure the loan to suit your business and your accountant’s advice, whether that’s a chattel mortgage, a lease, or something else. Our car loans page covers vehicle finance, and for larger fleets or attached equipment, equipment finance.
This article is general information only and does not take into account your objectives, financial situation or needs. It is not tax, legal or financial advice. Tax rules and thresholds change; confirm your position with your accountant or the ATO before acting.
Damo Treadgold is the director of Treadgold Finance, an FBAA-accredited finance broker on the Sunshine Coast, arranging car, equipment and business finance Australia-wide.
Frequently Asked Questions
Are car payments tax deductible for a business?
Generally not the repayments themselves. With a loan or chattel mortgage, you claim the interest and the depreciation of the car, at the business-use percentage. With a lease, you claim the lease payments. Confirm with your accountant.
Is buying a car for business tax deductible?
In proportion to business use, yes, usually through depreciation over time, or an upfront deduction in years where an eligible write-off applies. The ATO’s car limit caps the deduction on more expensive vehicles.
Are company cars tax deductible?
Generally yes for the business costs, but if the car is available for private use by a director or employee, fringe benefits tax can apply to the employer. Factor it into the whole-of-life cost.
Can I claim GST on a business car?
If you’re registered for GST, generally yes, at the business-use percentage and subject to the car limit. On a chattel mortgage the claim is usually made upfront; on a lease it’s claimed on each payment.
Is car insurance or maintenance tax deductible for a business?
Running costs such as insurance, servicing, repairs, fuel and registration are generally deductible at the business-use percentage.
Do I need a logbook?
For sole traders and partnerships, a logbook kept for a representative period is the usual way to establish the business-use percentage. Good records are what make any claim stand up.
