Buying a vehicle for your business does not automatically mean you can claim its full purchase price or every expense associated with it.
Australian tax rules distinguish between passenger cars, commercial vehicles, vehicles used by sole traders and those provided by companies to employees.
The treatment can also change depending on whether you use the vehicle privately, how you keep your records and whether it qualifies for particular depreciation or fringe benefits tax rules.
If you are considering buying a car, ute or electric vehicle for business, understanding these differences before signing the contract can help you make a more informed decision.
What vehicle expenses can you claim for business?
You may be entitled to deductions for eligible expenses incurred in earning business income.
Depending on your circumstances, these can include:
Running costs
Fuel, electricity used for business charging, servicing, repairs, tyres and insurance.
Registration and related costs
Eligible registration, compulsory third-party insurance and other vehicle operating expenses.
Depreciation
The decline in value of an eligible vehicle, subject to the applicable rules and any car limit.
Finance expenses
Eligible interest and finance costs related to business use of the vehicle.
You generally cannot claim private-use expenses. Loan principal repayments are also not ordinary running-cost deductions.
Vehicle acquisition costs are usually considered under the depreciation rules, rather than deducted simply because you paid for the vehicle.
What counts as business use?
Business use generally involves travel undertaken in the course of earning assessable income.
Examples may include visiting clients, travelling between separate workplaces, collecting supplies and attending business appointments.
Ordinary travel between home and a regular workplace is generally private, even when you drive a vehicle owned by your business.
Exceptions can apply, including certain itinerant work arrangements and situations involving bulky equipment.
A business logo, toolboxes or company registration do not automatically make every journey business-related.
A consultant who uses one car for work and family travel
You drive to client premises three days each week, but also use the car for shopping, school drop-offs and weekend travel.
The business-related journeys may qualify for deductions, while ordinary private journeys do not.
Your claim must reflect the applicable method and supporting records.
How do sole traders claim car expenses?
If you operate as a sole trader and use a vehicle that meets the tax definition of a car, you can generally choose between two methods.
1. Cents-per-kilometre method
For the 2026–27 income year, the ATO rate is 91 cents per business kilometre.
You can claim up to 5,000 business kilometres per eligible car each income year using this method.
You do not need a formal logbook, but you must be able to demonstrate how you calculated your business kilometres.
The rate already accounts for vehicle running expenses and depreciation. You cannot claim those costs again separately for the same car.
4,200 business kilometres
Assume you travel 4,200 eligible business kilometres during the year.
Your calculation is:
4,200 × $0.91 = $3,822
The potential deduction is $3,822, provided the eligibility and substantiation requirements are met.
2. Logbook method
The logbook method allows you to calculate the business-use percentage of eligible actual vehicle expenses.
A valid logbook generally covers at least 12 continuous weeks that are representative of your travel pattern.
You record the purpose, dates, odometer readings and kilometres for each journey.
A representative logbook can generally be used for five years, provided your usage remains representative and you meet the continuing record requirements.
75% business use
Your valid logbook establishes that 75% of your car use is business-related.
Assume eligible annual running expenses total $12,000, excluding depreciation.
The business portion of those expenses is:
$12,000 × 75% = $9,000
Eligible depreciation may also be calculated separately, subject to the car limit and other rules.
Do companies and trusts use the same methods?
No. Companies and trusts generally claim actual eligible vehicle costs rather than using the individual cents-per-kilometre or logbook deduction methods.
They still need appropriate records to support their deductions.
Where a company provides a vehicle to an employee or director for private use, fringe benefits tax may also apply.
Private company vehicles provided to shareholders or associates outside an employment arrangement may raise Division 7A issues.
Can you claim more for a ute than a passenger car?
Some commercial vehicles are treated differently from passenger cars for tax purposes.
A key distinction is whether the vehicle meets the statutory definition of a car.
Broadly, a car is a motor vehicle designed to carry fewer than nine passengers and a load of less than one tonne.
A vehicle with a payload capacity of one tonne or more generally falls outside that definition.
Its payload is generally calculated as:
Gross vehicle mass − basic kerb weight = payload capacity
For vehicles outside the definition of a car, different deduction methods and depreciation treatment may apply.
You generally need actual expense records and a reasonable method of separating business and private use.
Does every dual-cab ute qualify as a commercial vehicle?
No. A dual-cab ute should not be treated as a commercial vehicle simply because it has a tray.
Its carrying capacity, design and principal purpose may affect its treatment under particular tax rules.
The income tax, depreciation and FBT tests are not identical.
For example, a vehicle can fall outside the definition of a car for one purpose, while private use still requires consideration under FBT provisions.
Check the manufacturer's specifications and actual usage before assuming an exemption.
Which deduction method applies?
Identify whether it is held by an individual, sole trader, company, trust or employer.
Check passenger capacity, payload and the relevant tax provisions.
Review business journeys, private travel and the records required.
Consider cents per kilometre, logbook or actual costs, depending on eligibility.
Review purchase limits, input tax credits, private benefits and applicable concessions.
Can you claim the full purchase price of a business vehicle?
Not automatically. The cost of buying a vehicle is generally considered under the depreciation rules.
Eligible businesses may qualify for an instant asset write-off or other depreciation concessions where the relevant conditions are met.
The applicable threshold depends on the income year and legislation.
Even where an immediate deduction is available, a passenger car may still be subject to the car limit.
What is the car depreciation limit for 2026–27?
The car limit for the 2026–27 income year is $69,883.
This is generally the maximum cost used to calculate depreciation for a passenger vehicle subject to the limit.
It is not an automatic deduction of $69,883.
Your actual claim depends on business use, depreciation rules and other eligibility conditions.
A passenger car costing $90,000
You purchase a qualifying passenger car for $90,000 during 2026–27.
Even though the purchase price exceeds $69,883, the relevant depreciation cost is generally capped at the car limit.
The amount deductible for the year will depend on the applicable depreciation rules and business-use percentage.
Can you claim GST when buying a business vehicle?
GST-registered businesses may be entitled to input tax credits on eligible vehicle purchases and expenses.
The entitlement depends on the extent of creditable business use, the supplier's GST treatment and the relevant documentation.
Passenger vehicles subject to the car limit also have restrictions on the GST credits available.
For 2026–27, the maximum GST credit for a car subject to the limit is generally $6,353, before considering any private-use adjustment.
Exceptions can apply, including to certain vehicle trading stock and other qualifying circumstances.
The GST treatment of finance and lease arrangements also requires review.
Are electric vehicles tax deductible?
Electric vehicles used for business purposes can qualify for deductions under the relevant vehicle expense and depreciation rules.
Eligible costs may include charging, insurance, registration, servicing and depreciation.
Private use must still be considered. An electric vehicle does not automatically qualify for a full business deduction.
What is the electric vehicle FBT exemption?
Under the current electric car discount rules, eligible zero or low-emissions cars provided by employers can qualify for an FBT exemption.
Conditions include the type of vehicle, when it was first held and used, the employment arrangement and the relevant luxury car tax threshold.
Battery electric vehicles and qualifying hydrogen fuel cell vehicles may satisfy the vehicle-type requirement.
Plug-in hybrid electric vehicles generally ceased qualifying for new exemptions from 1 April 2025.
Transitional arrangements may preserve the exemption for certain existing commitments.
Even where an electric car benefit is FBT-exempt, a reportable fringe benefits amount may still need to be calculated.
What about the 2026–27 Budget changes?
The 2026–27 Federal Budget announced changes to the electric car FBT discount for future years.
The announced framework includes transitional arrangements and a different discount from 1 April 2029.
The application of these announced changes depends on legislation and the relevant commencement provisions.
Before entering a new salary packaging or leasing arrangement, confirm which rules apply at that time.
Can you claim home charging expenses?
Business-related electricity used to charge an electric vehicle may be deductible under the applicable expense rules.
You need a reasonable method of determining the eligible amount and appropriate supporting records.
The ATO also has specific compliance guidance for calculating home charging costs in certain FBT and car expense circumstances.
Installing a home charging station is not automatically treated the same way as paying for charging electricity.
What is fringe benefits tax on company vehicles?
Fringe benefits tax can arise when an employer provides a vehicle for an employee's private use.
This can include private use by directors who are employees.
A vehicle garaged at an employee's home may be treated as available for private use, even where actual private travel is limited.
Some eligible commercial vehicles may qualify for an FBT exemption where private use is sufficiently limited under the applicable rules.
Driving a ute does not automatically remove FBT obligations.
Cars, utes and EVs: Tax treatment compared
| Vehicle | Deductions | Main consideration |
|---|---|---|
| Passenger car | Eligible business-use expenses and depreciation. | Car limit and private-use apportionment. |
| Dual-cab ute | Treatment depends on its specifications and use. | Payload, vehicle classification and FBT. |
| Heavy commercial vehicle | Eligible actual business costs and depreciation. | Records, business use and applicable depreciation rules. |
| Battery electric car | Eligible business expenses and depreciation. | Car limit, charging records and possible FBT exemption. |
| Plug-in hybrid car | General car expense and depreciation rules. | New FBT exemptions generally unavailable from 1 April 2025. |
What records should you keep?
Good vehicle records help substantiate deductions and distinguish business from private use.
- Vehicle purchase contract and tax invoice.
- Finance or lease agreement.
- Registration and insurance records.
- Fuel and charging records.
- Servicing, repairs and maintenance invoices.
- Logbook and odometer readings where required.
- Business travel diary or journey records.
- Vehicle specifications and payload capacity.
- Employee vehicle use agreements.
- FBT calculations and supporting records.
- Depreciation schedules and disposal records.
Frequently asked questions
Can I claim 100% of a ute for business?
Only where the relevant costs are fully attributable to deductible business use and the applicable tax rules are met. Owning a ute does not automatically make private travel deductible.
Is driving from home to work tax deductible?
Ordinary travel between home and a regular workplace is generally private. Specific exceptions may apply depending on the work arrangement.
Do I need a logbook for a company car?
Companies do not use the individual logbook deduction method. A logbook may still be relevant to establishing business use or calculating FBT under the operating cost method.
Can I claim a $90,000 car as a business expense?
A passenger car costing $90,000 may be subject to the car depreciation limit. The deductible amount depends on business use and the relevant depreciation rules.
Are electric vehicles exempt from FBT?
Certain employer-provided electric cars can qualify for an exemption when the statutory conditions are met. Not every electric vehicle or arrangement qualifies.
Can I claim both cents per kilometre and fuel expenses?
No. The cents-per-kilometre rate already accounts for running costs and depreciation. You cannot claim those expenses separately for the same car under that method.
Is a vehicle lease better than buying?
The answer depends on cash flow, financing costs, ownership, GST, depreciation, FBT and the lease terms. Compare the total after-tax costs before deciding.
Related RJS articles
Review the tax implications before buying
The right vehicle for your business should meet your operating requirements and your budget.
Tax deductions are only one part of that decision.
Before purchasing, consider the vehicle's classification, expected business use, depreciation, GST treatment and any FBT obligations.
If you are choosing between a passenger car, commercial ute or electric vehicle, reviewing the total cost and tax treatment can help you compare the options.
Buying a vehicle for your business?
Your RJS accountant can help you review the tax treatment of cars, utes and electric vehicles, including depreciation, GST, FBT and business-use deductions.
Speak to an RJS AccountantSources and further reading
Australian Taxation Office: Cents per Kilometre Deduction Rate for 2026–27
Australian Taxation Office: Instant Asset Write-off and Car Limit
Australian Taxation Office: Electric Vehicles and Fringe Benefits Tax
Australian Taxation Office: Plug-in Hybrid Electric Vehicle FBT Changes
Australian Government: 2026–27 Budget Paper No. 2, Electric Car Discount Measures
Related RJS reading: Working From Home and Travel Tax Deductions
Information current as at October 2026.
This content is general commentary only and does not constitute advice. Before making any decision or taking any action in relation to the content, you should consult your professional adviser.
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