Are Business Car Loans Tax Deductible in Australia?

Yes — the interest, fees, and associated costs on a business car loan are tax-deductible in Australia, proportional to the vehicle's business use. Depreciation on the vehicle itself is also deductible. For the 2025–26 financial year, the ATO allows depreciation claims up to the car limit of $69,674, interest deductions based on your logbook business-use percentage, and GST credits for registered businesses. The exact deductions depend on your finance structure, business-use percentage, and entity type.

What exactly is deductible on a business car loan

A business car loan generates several separate tax deductions — each claimed differently and subject to different ATO rules. Understanding which components are deductible, and how to claim them correctly, is the difference between maximising your return and leaving money on the table.

Here's every deductible component, broken down:

Interest and finance charges

The interest you pay on a business car loan is tax-deductible as a business expense. This applies whether the loan is structured as a chattel mortgage, hire purchase, or finance lease.

The deduction is proportional to your business-use percentage. If your ATO logbook shows 70% business use, you can deduct 70% of the interest paid during the financial year.

On a $60,000 chattel mortgage at 7.5% over 5 years, total interest is approximately $12,200. At 70% business use, that's $8,540 in deductible interest over the life of the loan — saving you $2,776 in tax at the 32.5% marginal rate, or $2,562 at the 30% company tax rate.

Establishment fees, application fees, and ongoing account-keeping fees are also deductible as borrowing costs. If total borrowing costs exceed $100, they must be spread over the loan term (or 5 years, whichever is shorter) rather than claimed in full in the first year.

Depreciation

When you finance a vehicle through your business via a chattel mortgage or hire purchase, you own the asset — which means you can claim depreciation.

The ATO provides two methods for depreciating vehicles:

Diminishing value method: You apply a percentage to the remaining written-down value each year. For a passenger vehicle with an effective life of 8 years, the rate is 25% in year one and 12.5% from year two onward. This front-loads the deduction — you claim more in the early years when the vehicle is worth more.

Prime cost method: You claim the same amount each year over the vehicle's effective life. For an 8-year effective life, that's 12.5% per year. This gives equal deductions but lower claims in the early years compared to diminishing value.

The car limit: For passenger vehicles, the ATO caps the depreciable amount at the car limit — $69,674 for the 2025–26 financial year. If you buy a $90,000 SUV, you can only depreciate $69,674 of it. This limit does not apply to vehicles designed to carry loads of one tonne or more (most utes, vans, and commercial vehicles) — for these, the full purchase price is depreciable.

Small business depreciation pool

If your business has aggregated turnover under $10 million, you can use the simplified depreciation rules instead of tracking each asset individually.

Vehicles costing $20,000 or more go into the general small business pool, where you claim:

• 15% in the first year the asset is used or installed ready for use
• 30% each year after on the pool's closing balance

For a $60,000 vehicle added to the pool at 80% business use:

• Year 1: $60,000 × 15% × 80% = $7,200 deduction
• Year 2: $51,000 × 30% × 80% = $12,240 deduction
• Year 3: $35,700 × 30% × 80% = $8,568 deduction

The $20,000 instant asset write-off (2025–26) allows eligible small businesses to immediately deduct assets costing less than $20,000 each. Most vehicles exceed this threshold, but it applies to separately purchased accessories — toolboxes, canopies, GPS units, signage wraps, tow bars — if each item is individually under $20,000.

GST credits

If your business is registered for GST and the vehicle is purchased using a chattel mortgage, you can claim the GST on the purchase price as an input tax credit on your next BAS.

For the 2025–26 financial year, the maximum GST credit on a passenger vehicle is $6,334 (one-eleventh of the car limit of $69,674). On a $55,000 vehicle, the full GST component of $5,000 is claimable. On a $90,000 vehicle, the credit is capped at $6,334.

Vehicles exempt from the car limit — those designed to carry one tonne or more — have no cap on the GST credit. A $80,000 Toyota LandCruiser ute used 100% for business would generate a full $7,273 GST credit.

Note: GST credits are not available on finance lease payments in the same way. With a finance lease, you claim GST credits on each lease payment as you go, rather than upfront on the purchase price. This is a key structural difference that affects cash flow — our guide to business vs personal car loan costs covers the structural comparisons.

Running costs

Beyond the loan itself, every running cost associated with a business vehicle is deductible proportional to business use:

• Fuel and oil
• Registration
• Comprehensive insurance
• Servicing and repairs
• Tyres
• Tolls and parking (business-related only)
• Roadside assistance
• Car wash (if the vehicle is used for client-facing work)

At $6,000 per year in running costs and 70% business use, you're deducting $4,200 annually — worth $1,365 in tax savings at the 32.5% marginal rate.

How the logbook method works

The ATO requires a logbook to substantiate your business-use percentage. Without one, you can't claim proportional deductions — and the ATO can deny your claims entirely during an audit.

What you need to record

You must keep a logbook for a minimum continuous 12-week period. For each trip, record:

• Date
• Odometer reading (start and end)
• Kilometres driven
• Purpose of the trip
• Whether the trip was business or personal

At the end of the 12 weeks, calculate your business-use percentage. This percentage applies to all vehicle deductions for up to 5 years — or until your circumstances change significantly (new job, new business, change of address that affects commute patterns).

Digital logbooks

The ATO accepts digital logbook apps that use GPS tracking to automatically record trips. Popular options in Australia include Logbook Me, Vehicle Logbook, and the ATO's own myDeductions app. The key requirement is that the digital records contain the same data points as a paper logbook.

Digital logbooks reduce the compliance burden significantly. Most apps auto-categorise trips based on location patterns and allow you to confirm or adjust with a swipe. The 12-week recording period is still required, but the daily effort drops from minutes to seconds.

The 5,000 km shortcut (cents per kilometre)

If your business use is low, the ATO offers an alternative: the cents per kilometre method. For 2025–26, the rate is 88 cents per business kilometre, capped at 5,000 km — giving a maximum deduction of $4,400.

This method requires no logbook. But it's only suitable for vehicles with low business use. If your actual business use is 15,000 km per year, the logbook method will yield significantly higher deductions.

How deductions differ by finance structure

The finance structure you choose affects the timing and type of deductions available.

Chattel mortgage front-loads the tax benefits: you get the GST credit immediately and can claim depreciation from day one. This is why it's the most popular structure for business car loan borrowers who want maximum first-year deductions.

Finance lease spreads the tax benefits: lease payments are fully deductible, but you don't get the upfront GST credit or depreciation claims. This suits businesses that prefer consistent, predictable deductions each year.

Fringe Benefits Tax: the trap for employee vehicles

If your business provides a vehicle to an employee (including a director who's also an employee of their own company), Fringe Benefits Tax (FBT) may apply. The FBT rate for 2025–26 is 47%, and it's calculated on the taxable value of the benefit — which can be substantial.

When FBT applies

FBT applies when a vehicle owned or leased by the business is made available to an employee for private use. "Made available" includes the vehicle being garaged at the employee's home, even if they don't use it privately on a given day.

When FBT doesn't apply

FBT does not apply if:

• The vehicle is used by a sole trader (you can't provide a fringe benefit to yourself)
• The vehicle is a commercial vehicle (designed to carry one tonne or more) and private use is limited to home-to-work travel and minor, infrequent personal trips
• The vehicle is parked at the business premises and not available to employees outside work hours

The operating cost method vs statutory formula

If FBT does apply, you have two methods to calculate the taxable value:

Statutory formula method: The taxable value is 20% of the vehicle's base value, regardless of how much private use occurs. For a $60,000 vehicle, the taxable value is $12,000. At the 47% FBT rate, the tax is $5,640 per year — before any gross-up.

Operating cost method: The taxable value is based on the actual percentage of private use, calculated using a logbook. If private use is 30%, the taxable value is 30% of the total operating costs (depreciation, fuel, insurance, interest, etc.). This method usually produces a lower FBT liability if business use is high, but requires a logbook.

FBT is a complex area and the wrong structure can cost thousands per year. If your business provides vehicles to employees — including yourself as a director — talk to your accountant before committing to a finance structure.

Common tax mistakes with business car loans

Claiming 100% when business use isn't 100%

The ATO audits vehicle deductions regularly. If you claim 100% business use but your logbook shows 80%, you'll face a reassessment plus penalties. Be honest with your logbook — it protects you in an audit.

Not keeping a logbook at all

Without a valid logbook, the ATO can deny all proportional deductions. The cents-per-kilometre method is your only fallback, capped at $4,400. For most business vehicles, a logbook will yield deductions worth multiples of that figure.

Confusing GST credit eligibility with depreciation

The car limit ($69,674 for 2025–26) applies to both GST credits and depreciation, but they're claimed separately through different mechanisms. The GST credit is claimed on your BAS; depreciation is claimed in your income tax return. Don't double-count, and don't miss either one.

Ignoring FBT on director vehicles

If you're a director of your own Pty Ltd company and the company owns the car, FBT may apply on your private use — even though you're the business owner. Sole traders don't face this issue. The structure matters.

This article is general information only and is not financial advice.