Car Loan Tax Deductions for Business in Australia (2026-27)

Yes, a car loan tax deduction is available when the vehicle is used for business: you claim the interest, the vehicle's decline in value, its running costs and, if you're registered for GST, a GST credit, each in proportion to business use. For 2026-27 the ATO car limit is $69,883, which caps depreciation on passenger cars.

2026-27 figures at a glance

The 91-cent rate includes a one-off 2-cent uplift for the 2026-27 year, which the ATO added because of higher fuel costs. The base rate it will index from in later years is 89 cents.

Can you claim the car loan repayments themselves?

Not as repayments. A loan repayment is part principal and part interest, and the principal just pays back what you borrowed. The ATO's list of deductible vehicle expenses includes the interest on a motor vehicle loan, not the repayment. The cost of the vehicle comes back to you another way: through depreciation, which spreads the purchase price over the vehicle's effective life.

Leases work differently. With a finance lease or operating lease you don't own the vehicle, so you claim the business share of the lease payments instead of interest and depreciation. The exception is a leased luxury car, covered in the finance structure section below.

Which vehicles the car limit applies to

The car limit applies to cars designed mainly for carrying passengers: vehicles built to carry fewer than 9 passengers and a load of less than one tonne. A vehicle designed to carry a load of one tonne or more, or 9 or more passengers, or one that isn't designed mainly to carry passengers, sits outside it. Those vehicles are depreciated on their full cost, and the GST credit isn't capped.

Payload is not the same as towing capacity. The ATO defines it as the gross vehicle mass on the compliance plate minus the basic kerb weight. Dual cab utes are the grey area. Some are rated under one tonne, and whether one counts as designed mainly for carrying passengers depends on the vehicle, so check the exact variant with your tax adviser before assuming the cap doesn't apply.

Here's what the difference means on an $88,000 vehicle bought in 2026-27 by a GST-registered business:

On the passenger car, $11,764 of the $88,000 price earns neither a GST credit nor a depreciation deduction. If you're weighing a luxury model, our luxury car tax calculator covers the separate LCT threshold.

Car loan tax deductions: what you can claim

A business car loan produces several separate car loan tax deductions, each with its own ATO rules. Each is limited to the business-use share of the vehicle.

Interest and borrowing costs

Interest on a business car loan is deductible in the income year you incur it, whether the finance is a chattel mortgage or hire purchase. On a $60,000 loan at 7.5% over 5 years, total interest comes to about $12,140. At 70% business use, about $8,500 of that is deductible over the loan, which is worth about $2,550 in tax at the 30% marginal rate.

Interest falls each year as the balance reduces, so the deduction is front-loaded: about $4,150 of interest in year one on that loan, and under $600 in year five.

Establishment and application fees are borrowing expenses, which follow a different rule. If they total more than $100, you deduct them over the shorter of the loan term or 5 years rather than all at once. Interest is not a borrowing expense, so this spreading rule doesn't apply to it.

Depreciation (decline in value)

If you own the vehicle, including under a chattel mortgage, or buy it under hire purchase and are likely to take ownership, you claim its decline in value. The ATO's effective life for a car is 8 years, and there are two methods:

• Diminishing value: 25% of the vehicle's remaining written-down value each year (200% divided by the 8-year life). A vehicle costing $60,000 with an 8-year effective life, held for a full year, gives $15,000 in year one, then 25% of the remaining $45,000, or $11,250, in year two. The deduction starts high and shrinks each year.
• Prime cost: 12.5% of the cost each year, or $7,500 a year on the same vehicle. The deduction stays level.

The cost you depreciate is the price after deducting any GST credit you're entitled to, then capped at the car limit for passenger cars. In the year you buy it, the claim covers the days you held the vehicle, not the full year.

Small business pool and the instant asset write-off

If your business has aggregated turnover under $10 million and uses the simplified depreciation rules, the options change:

• Vehicles costing less than $20,000: the business portion of the cost can be written off in the year they're first used, new or second-hand. The $20,000 instant asset write-off became permanent from 1 July 2026, and the limit applies per asset.
• Vehicles costing $20,000 or more go into the general small business pool. You claim 15% in the year the vehicle is added and 30% of the pool balance each year after.

For the pool, you add the business-use share of the cost. A $60,000 vehicle at 80% business use puts $48,000 in the pool, giving a $7,200 deduction in year one, $12,240 in year two and $8,568 in year three.

GST credits

If your business is registered for GST, you claim the GST in the vehicle's price as a GST credit on your BAS, reduced for any private use. On a $55,000 vehicle, that's up to $5,000.

For a passenger car above the car limit, the credit is capped at $6,353 in 2026-27. A ute or van with a payload of one tonne or more has no cap: an $80,000 work ute used entirely for business gives a GST credit of about $7,273. You can't claim a credit for any luxury car tax paid.

Running costs

The business share of running costs is deductible, including fuel and oil, registration, insurance, servicing and repairs, tyres, and business-related tolls and parking. At $6,000 a year in running costs and 70% business use, you deduct $4,200 a year, worth $1,260 in tax at the 30% marginal rate.

How you claim depends on your business structure

The ATO's claiming methods depend on how your business is set up, and applying the wrong one is a common mistake.

Sole traders and some partnerships can claim a car using the cents per kilometre method or the logbook method. For a vehicle that isn't a car under the tax rules, such as a ute with a payload of one tonne or more, they claim the actual costs of business use.

Companies and trusts don't use either method. The business claims the actual costs of the vehicle it owns or leases, and if an employee or director can use it privately, fringe benefits tax may apply (see the FBT section below).

How the logbook method works

A logbook is how a sole trader proves the business-use percentage their other deductions depend on. Without one, the logbook method isn't available.

What you need to record

The logbook must cover at least 12 continuous weeks that are broadly representative of your travel. For each business journey, record:

• The date, the reason for the trip and the destination
• The odometer reading at the start and the end
• The kilometres travelled

Record each journey at the end of the trip or as soon as possible afterwards. You also record the odometer readings at the start and end of the logbook period, and in each later year you rely on it, the readings for the period you owned the car. The business-use percentage from the 12 weeks then applies for 5 years, unless your circumstances change, such as a new job, a new business location or a move of house.

Digital logbooks

You can keep an electronic logbook, including with the myDeductions tool in the ATO app. The same 12-week period and journey details apply.

The cents per kilometre method

If your business travel is light, the cents per kilometre method avoids the logbook. For 2026-27 you claim 91 cents for each business kilometre, up to 5,000 km, so the maximum claim is $4,550. The rate covers all running costs and depreciation, so you can't claim those separately on top.

You still need to show how you worked out your business kilometres. Kilometres beyond 5,000 earn nothing under this method, which is where a logbook starts to pay off.

How car loan tax deductions differ by finance structure

The finance structure you choose changes what you claim and when.

A chattel mortgage front-loads the benefit: the GST credit comes back on your next BAS and depreciation starts straight away. That suits business car loan borrowers who want their deductions early. Our chattel mortgage guide covers how it works.

Hire purchase gets the same up-front GST credit for any agreement entered on or after 1 July 2012. For those agreements, GST applies to the whole agreement, including the credit charge, and you can claim the credit up front even if you account for GST on a cash basis.

A finance lease or operating lease spreads the benefit: one deductible payment each period instead of separate interest and depreciation claims. There's one catch. If a leased car costs more than the car limit, the ATO treats the lease as a notional sale and loan. You then claim depreciation on the capped cost plus a finance charge, not the lease payments.

Fringe benefits tax: the trap for company vehicles

If a company or trust provides a vehicle to an employee, including a director who works in their own company, fringe benefits tax may apply. The FBT rate is 47%, and it's charged on a grossed-up value of the benefit, so the bill can be large.

When FBT applies

FBT applies when a car the business owns or leases is used by, or available for, an employee's private use. A car garaged at or near the employee's home counts as available, even on days it isn't driven privately.

When FBT doesn't apply

• Sole traders using their own vehicle. FBT is a tax on benefits an employer gives an employee, and a sole trader isn't their own employee.
• Eligible vehicles with limited private use. Utes, panel vans and some other commercial vehicles can be exempt when private use is limited to travel between home and work, travel incidental to work, and non-work use that is minor, infrequent and irregular. Dual cab utes qualify in some cases and not others; the ATO sets out the test in its dual cab guidance (MT 2024).

Statutory formula vs operating cost method

There are two ways to work out the taxable value of a car fringe benefit:

Statutory formula method: the taxable value is 20% of the car's base value, which includes GST. For a car with a base value of $60,000 provided all year, that's $12,000. The FBT is then worked out on the grossed-up value: $12,000 × 2.0802 × 47%, or about $11,730 for the year where the business can claim GST credits. Employee contributions reduce the taxable value.

Operating cost method: the taxable value is the private-use share of the car's actual running costs, including depreciation and interest, measured with a logbook. The lower the private use, the lower the taxable value, but it needs a logbook and full cost records.

FBT is complex, and the wrong structure can cost thousands a year. If a company car will be available to you or your staff for private use, talk to your accountant before choosing how to finance it.

When buying through your business isn't worth it

The deductions on this page shrink in line with the business-use share. If a vehicle is mainly for family use, the business share is small, while the record-keeping stays the same. In that case a personal car loan may be the simpler choice, and our comparison of business and personal car loan costs shows where the line sits.

The benefit is also smaller if your business isn't registered for GST, because there's no GST credit, or if you're buying a passenger car well above the car limit, because the extra cost earns nothing. If you're weighing whether an ABN changes the price you pay, see why ABN holders can get cheaper cars.

Common tax mistakes with business car loans

Claiming 100% when business use isn't 100%

Vehicle claims are a common source of ATO adjustments. If you claim 100% business use but your logbook shows 80%, expect the claim to be reduced, with possible penalties. An honest logbook is your protection in a review.

Claiming the repayments instead of the interest

Deducting the full monthly repayment claims the principal, which isn't deductible. Claim the interest, and recover the vehicle's cost through depreciation.

Using the logbook method in a company

The cents per kilometre and logbook methods are for sole traders and some partnerships. A company claims actual costs and deals with private use through FBT.

Assuming a ute is exempt from the car limit

Being a ute doesn't settle it. A ute designed to carry one tonne or more is outside the cap, but a dual cab rated under one tonne may be treated as a car designed mainly for passengers, with its depreciation and GST credit capped.

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 to your private use, even though you own the business. The structure you buy through matters.

This article is general information only and is not financial or tax advice. Check your situation with a registered tax agent.