When buying a new car, there are a number of options to consider, including whether to purchase through a business, or as a personal vehicle.
For the purposes of this fact sheet, a car is defined as a motor vehicle designed to carry a load of less than one tonne and less than 9 passengers. The term car does not include a motorcycle or similar vehicle.
Should I buy the car personally or through my business?
This depends on a number of factors. One of the main determining factors is what percentage of your car’s trips will be used for business purposes as opposed to personal use.
Business Purchase
If the car is exclusively used for business purposes, it makes sense to purchase it in the business’ name. That being said, you can still use your business’ vehicle for private use but there will be a Fringe Benefits Tax (FBT) implication.
Where the business is registered for Goods and Services Tax (GST), the GST on the purchase of the vehicle can be claimed up to the legislated car (depreciation) limit and subject to the business use percentage. Further details on the GST implications are provided in the table below.
Personal Purchase
If you use the vehicle predominantly for personal use, then it might be best to purchase it privately and claim the business use portion on your personal tax return or, reimburse the cost from your business for the business portion of expenses incurred.
Financing Options for purchasing a car through your business
Please see the following options and note that the deductions listed, and GST credit is only claimable based on the business use percentage. Furthermore, GST is only claimable if registered for GST and up to the car (depreciation) limit. Depreciation is also limited to the car (depreciation) limit which is $68,108 for the 2024 financial year, and $69,674 for the 2025 financial year.
| Type | Description | Ownership | Potential Tax Advantages |
| Chattel Mortgage/Bank loan | Business takes out a loan, secured against the car | Ownership transfers to the business straight away | – Claim GST on the purchase price*
– Claim a tax deduction for interest on loan – Claim a tax deduction for depreciation on the vehicle* |
| Hire Purchase | Lender buys the car on the business’ behalf, business then hires the vehicle for duration of loan term | Ownership transfers to the business when loan paid off | – Claim GST on the purchase price*
– Claim a tax deduction for interest on loan – Claim a tax deduction for depreciation on the vehicle* |
| Lease | The finance company buys the car then leases it to the business over the lease term | Car owned by the finance company | – Claim GST on the lease payments
– Claim a tax deduction for the lease payments |
* Up to the car (depreciation) limit
Calculation methods for claiming motor vehicle expenses
Sole trader or Partnership (where at least one partner is an individual)
To calculate motor vehicle deductions:
- You must own or lease the car;
- Car must meet the definition of a car as defined at the top of this article;
- Expenses are for work related trips only. If there is a mixture of private, then you need to remove the private portion;
- You had to incur the costs yourself – you were not reimbursed for them; and
- You can substantiate the expense.
There are two methods of claiming motor vehicle expenses for work related travel as noted below. Please note that work related travel does not include trips to and from your usual place of work and your home.
Cents per kilometre
You can claim a maximum of 5,000km using the cents per kilometre method. To work out your claim, multiply the number of work related kms travelled by the ATO rate. Trips taken in a standard car can be claimed at 85 cents per km for the 2024 financial year and 88 cents per km for the 2025 financial year. The number of kms travelled needs to be substantiated by a diary or log of the trips taken. This rate takes into account all of your vehicle running expenses and depreciation.
Logbook method
The logbook will need to be kept for at least 12 consecutive weeks to determine the percentage of business use. The 12 week period should be representative of typical travel. The logbook must include the destination and purpose of every journey, the odometer reading at the start and end of each journey, the total kilometres travelled during the period and odometer readings for the start and end of the logbook period. To work out your claim, apply the business use percentage to all costs of the vehicle e.g. fuel, repairs and servicing, registration and insurance, depreciation, interest on finance etc. Your logbook is valid for 5 years provided your job or vehicle usage does not change substantially. If you are using the logbook method for 2 or more cars, you must keep a separate logbook for each car.
Company or Trust
Actual cost method
The actual cost method is where you claim expenses based on actual receipts. Because FBT will apply here for any private portion of the expense, the whole expense is included.
Where your logbook percentage for the vehicle owned by the company or trust is less than 100% business use, FBT will apply to tax the private use percentage at the FBT tax rate.
Examples of claimable expenses in relation to motor vehicles are as follows:
- fuel and oil
- repairs and servicing
- insurance cover premiums
- registration
- depreciation
- interest expense.
Car depreciation limit
There is a limit on the cost you can use to calculate the depreciation on cars. As mentioned earlier, for 2024, the limit is $68,108, and for 2025 the limit is $69,674. If the purchase price of the car is greater than the limit, you forgo the depreciation deduction and ability to claim GST on the portion above the limit.
Goods and Services Tax (GST)
GST on purchase
If you are registered for GST, and the motor vehicle is solely used for business purposes then the full GST on purchase of the vehicle can be claimed. However, a maximum GST credit claimable applies and is based on the car (depreciation) limit. If you purchase a vehicle above the car (depreciation) limit, the maximum amount of GST credit you can claim is one-eleventh of that limit.
For example, if you purchase a car for $88,000 in the 2024 financial year, you cannot claim an $8,000 GST credit as the value of the car is above the car limit for that year. Instead you can claim a maximum GST credit of $6,191, being one-eleventh of $68,108.
If you use the motor vehicle only partly for business purposes, you can only claim a partial GST credit based on the business use percentage.
GST on disposal
GST needs to be accounted for when you dispose of a motor vehicle whether by sale, trade in or disposal to an associate. GST is levied on 100% of the sale proceeds and there is no adjustment for business use of the vehicle.
Fringe Benefits Tax (FBT)
FBT applies where there is personal use of the car owned by the business by a shareholder/associate or employee. FBT rules are complex. See our FBT article here for more details.
Contact Pilot
If you would like assistance to determine the best strategy for buying your new car, contact Kristy Baxter, Angela Stavropoulos or your Pilot Advisor on taxmed@pilotpartners.com.au or (07) 3023 1300.