With more businesses purchasing high-end vehicles, understanding how luxury car rules affect tax claims is essential. Despite the business use, luxury vehicles can deliver worse tax outcomes than expected.
Depreciation and GST Limits
The ATO publishes an annual “luxury car limit” ($69,674 for 2025–26). If your vehicle’s cost exceeds this, you cannot claim full GST or depreciation.
For example, if a business vehicle costs $88,000, the GST credit and depreciation claim is limited to the threshold amount, not the full purchase price.
Exemptions
These rules don’t apply if the vehicle:
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Is designed to carry at least one tonne of load
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Seats at least nine passengers
Dual cab utes may qualify, depending on seating-to-load capacity ratios. Specific calculations are needed to determine if a vehicle’s main purpose is to carry passengers or goods.
Luxury Leases
When leasing a luxury vehicle, the lease is treated as a deemed purchase. Taxpayers claim notional interest and depreciation, subject to the same limits.
Luxury Car Tax (LCT)
Cars exceeding LCT thresholds are subject to a 33% tax on the amount above the threshold. For 2025–26:
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Fuel-efficient vehicles: $91,387 (but must now consume no more than 3.5L/100km)
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Other vehicles: $80,567
Understanding these limits before signing a car contract can protect your business from unexpected tax shortfalls.
