Buying a car through a business changes three things at once: how the finance is structured, how GST is claimed, and how the cost is deducted. They interact, and the interaction has a threshold in it that catches people at exactly the point they are spending the most money.
The car limit caps two things at once. For 2026–27 it is $69,883 — the most you can use to calculate depreciation, no matter what you paid — and the GST credit on a car purchase is capped at one-eleventh of it, $6,353. Buy a $91,000 car and the GST credit is still $6,353, and the luxury car tax on top is never creditable at all. But the cap does not apply to lease payments, which is the single most consequential difference between the structures below.
Chattel mortgage
You buy the car and own it from the start; the lender takes a mortgage over it as security. Because it is a purchase, GST sits on the purchase price and the credit is claimed against the purchase — subject to the car limit above.
You claim depreciation on the car (capped at the car limit) and the interest component of the repayments, both apportioned to business use. If you use the car 60% for business, you claim 60%.
Finance lease
The financier owns the car; you have the use of it and a residual at the end that you are generally expected to deal with. The ATO's description of the distinction is that a finance lease has a residual and, in practice, an opportunity to buy the car for that amount at the end of the term.
Lease payments are deductible to the extent the car is used in the business. And the GST treatment is where the real difference lies.
Operating lease
The financier owns the car and carries the risk on what it is worth at the end. You return it within agreed kilometre and condition limits and walk away. It is, as the ATO puts it, simply a contract for the use of the car for a fixed term.
For a business that replaces vehicles on a cycle and does not want to be in the used-car market, this is often the point of the arrangement.
The GST difference that decides it above the car limit
This is worth stating on its own, because it is the fact most likely to change a decision and the one least likely to appear in a finance brochure.
On a purchase, the ATO is explicit: if the price is more than the car limit, the maximum GST credit is one-eleventh of the limit — $6,353 for 2026–27 — and that cap applies to fuel-efficient cars too. On a lease, the ATO is equally explicit that you may claim a GST credit for the GST in each lease payment based on business use, and that this is not limited to one-eleventh of the car limit.
Car thresholds by income year
- Car limit 2026-27
- $69,883
- Max GST credit 2026-27
- $6,353
- Car limit 2025-26
- $69,674
- Max GST credit 2025-26
- $6,334
- LCT threshold, fuel-efficient
- $91,661
- LCT threshold, other
- $80,809
The ATO's own worked example: Darren buys a non-fuel-efficient car for $91,242.80 including $8,075.91 GST and $2,407.80 luxury car tax, for 100% business use. He reports $69,883 at G10 and claims a GST credit of $6,353 — not the $8,075.91 he paid. He cannot claim a credit for the luxury car tax at all. At 50% business use it would be $3,176.50.
There are exceptions to the cap, and they are narrow: the car is held solely as trading stock (other than for hire or lease), it is used in research and development for the manufacturer, it is exported GST-free, it is an emergency vehicle, it is a commercial vehicle not designed principally to carry passengers, it is a motor home or campervan, or it is fitted out for transporting people in wheelchairs. The commercial-vehicle exception is the one most small businesses actually meet — and it is the same design test that decides the FBT treatment of a ute.
The detail sits on the ATO's page for purchasing a motor vehicle.
The instant asset write-off, and why a car usually misses it
For small businesses with aggregated turnover under $10 million using the simplified depreciation rules, the instant asset write-off limit has been $20,000 for assets first used or installed ready for use between 1 July 2023 and 30 June 2026. It applies per asset, so multiple assets can each be written off.
Two points about cars specifically. The limit is tested against the whole cost of the asset, not the business-use share — the ATO's example has Daryl buy a $40,000 ute for 40% business use, and he cannot use the write-off even though the cost to the business is $16,000, because $40,000 exceeds the $20,000 limit. And a car costing more than the car limit cannot have the excess claimed under any other depreciation rule either.
As part of the 2026–27 Budget the Government announced it will make the $20,000 write-off permanent from 1 July 2026 for businesses under $10 million turnover. That measure is not yet law. Treat it as a plan rather than a rate to commit to.
FBT arrives if an employee drives it
If the business provides the car to an employee — including a director, and including you if the business employs you — private use is a car fringe benefit, and FBT is a separate tax on top of everything above. That is often the largest single cost in the arrangement and the one least often modelled.
The exception is a genuinely commercial vehicle with limited private use, which has its own conditions. Both are covered in fringe benefits tax on cars in Australia. If the car is going to an employee as part of their remuneration, a novated lease may be the cleaner structure.
Records decide the claim
Whichever structure you choose, the deduction is apportioned by business use, and business use is a question of evidence rather than intention. A logbook and odometer records are what make the apportionment defensible — and for FBT purposes, the operating cost method is not even available without them.
Keep the purchase or lease documents, the tax invoice, the finance schedule showing the interest component, and the logbook. Then take the structure to your accountant before you sign, because the three options above are not equally good for any two businesses and the difference above the car limit is measured in thousands.
Where to check
Start at the ATO's motor vehicle expenses guidance and the GST pages linked above, and confirm the current-year thresholds each 1 July — the car limit, the GST credit cap and both LCT thresholds are indexed and move.