Buying a Car for Your Business: Deductions, GST and Private Use

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A business car is not automatically fully tax deductible. The result depends on ownership, business structure, vehicle type, use and the applicable depreciation rules. Work through those questions before agreeing to a purchase or lease.

Choose the owner and record the use

A sole trader using a car for business and private purposes needs to separate those uses. Eligible individuals and certain partnerships may use the cents-per-kilometre or logbook method for cars. Companies and trusts generally claim actual costs; they cannot use those individual income-tax calculation methods.

The ATO motor vehicle deductions guide explains the differences. A company may still need logbook records for FBT purposes, which is a separate calculation.

Separate running costs from the purchase price

Fuel, servicing, insurance and other eligible running expenses are different from the capital cost of acquiring the vehicle. Depreciation or an applicable immediate deduction deals with that capital cost. Passenger-car limits can restrict depreciable cost and GST credits; the income-tax car limit and luxury car tax threshold are different tests.

The old COVID-era temporary full expensing discussion previously on this page is no longer current. Read our current instant asset write-off guide to check eligibility, asset cost and timing. Do not assume the rules for one income year apply to another.

Check private use, FBT and GST

An employer-provided car available for an employee’s private use can attract FBT, including use by an associate. Shareholder use outside an employment capacity can raise Division 7A issues. An electric car may qualify for a specific exemption; see our electric vehicle FBT guide.

GST treatment also depends on registration, the acquisition and intended use. Confirm the tax invoice and any car-limit restriction before entering the purchase in your BAS. A financing arrangement does not by itself establish a deductible expense.

Bring these records before committing

• A written quote, vehicle specifications and proposed purchase or lease agreement.
• The proposed owner and an estimate of business and private travel.
• Invoices, finance schedules and evidence of payment.
• A suitable travel record, logbook where required and odometer readings.
• Details of any trade-in and the old vehicle’s tax records.

Compare the after-tax cash cost over the intended ownership period, not just the first-year deduction. A deduction reduces taxable income; it does not reimburse the purchase price.

Discuss your circumstances

Stewart Private Accounting helps business owners in Perth and across Australia with accounting and tax support. Contact our team to discuss the records, scope and fees for your work.

This guide provides general information current at the update date. The treatment depends on your circumstances and the applicable income or FBT year.