Tradies write off utes and trucks through the business all the time, so it’s a natural assumption that the same logic carries over to an expensive passenger car. It doesn’t — and the gap between the two catches people out. This is general information, not tax advice, so talk to your accountant about your own situation — but here’s what to know going in.
The car cost limit
For depreciation purposes, the ATO caps how much of a car’s cost the business can claim — currently around $70,000, indexed each year. Buy a car above that limit and you can only depreciate up to the limit, not the full purchase price, no matter what the car actually cost.
The GST trap
This is the one that surprises people most. When a business buys a car above the cost limit, the GST credit it can claim is capped too — roughly 1/11th of the car limit, not 1/11th of what you actually paid. So on an expensive car, you’re only ever getting back a fraction of the GST you paid at purchase.
Here’s the sting: when the business later sells that car, GST is generally payable on the full sale price — not just the capped portion. Capped credit going in, full GST going out. That asymmetry is the trap, and it’s easy to miss until the sale.
Luxury car tax
Separately, luxury car tax (LCT) applies at 33% on the value above the LCT threshold — roughly $80,000, higher for fuel-efficient vehicles, and indexed each year. This is on top of the cost limit and GST treatment above, and it applies whether the car is bought personally or through a business.
Why utes and trucks are different
The “the business writes it off” logic that applies to utes and trucks doesn’t carry over to expensive passenger cars. Commercial vehicles — utes and trucks with a payload over one tonne — generally sit outside the car cost limit and LCT rules altogether. It’s one of the reasons tradies favour them over passenger vehicles when they’re buying through the business.
What this means practically
None of this means a luxury car is a bad idea — plenty of businesses run one. It just means the numbers work differently to what most people expect, and it’s worth knowing the shape of it before you sign anything, not after.
How Budget Finance can help
We finance luxury cars all the time — how you structure the purchase still matters, so talk to us and your accountant before you commit. If you’re still weighing up your options more broadly, our car finance guide covers what you’ll need either way.
Considering a luxury car for the business? Get in touch and we’ll help you work through the structure.
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