Buying a Car Through a Business or ABN: Is It Cheaper?

Buying a car through a business doesn't get you a lower price at the dealer. It lowers the after-tax cost: for a GST-registered sole trader, the GST credit and deductions for interest, running costs and loss in value follow the business-use share. In our worked example, that's worth just over a quarter of the cost of owning a $55,000 ute.

Do ABN holders really pay less for a car?

Not at the counter. An ABN holder and a private buyer pay the same drive-away price for the same car, although some manufacturers and dealers offer business or fleet pricing, so it's worth asking. The difference comes afterwards, through the tax system.

The tax benefit follows how the car is used, not the ABN itself. A sole trader or partnership claims the business-use share, and an employee who uses their own car for work can claim work-related car expenses too. What an employee can't claim is a GST credit. Companies and trusts work differently: when an employee or director uses the car privately, the business can deduct those private-use costs, and fringe benefits tax may apply to the private use instead.

Where the saving comes from

The rules in this section are for a sole trader or partnership, which is what the worked example assumes. Companies and trusts deduct private-use costs and deal with fringe benefits tax instead.

The GST credit

If your business is registered for GST and you buy the car outright, with a chattel mortgage or with hire purchase, you claim the GST in the price as an input tax credit on your BAS. You need a tax invoice, and for a sole trader or partnership the credit covers the business-use share: on a $55,000 car used 80% for business, that's $4,000 of the $5,000 GST.

For a car designed mainly for passengers and priced above the 2026-27 car limit of $69,883, the credit is capped at $6,353. Under a lease, you claim GST on each lease payment instead. A private seller who isn't registered for GST doesn't charge GST, so a car bought that way has no GST credit to claim.

Interest

The business share of the interest on the loan is deductible. The principal isn't, because it repays what you borrowed.

Loss in value

You deduct the car's decline in value over the years you own it, and the diminishing value method front-loads those deductions. But under the general depreciation rules, when you sell, the business share of any amount you receive above the car's written-down value is taxable income. Over the time you own the car, depreciation deducts roughly what it actually lost in value, not its full price.

Running costs

The business share of fuel, registration, insurance, servicing, tyres and business tolls is deductible.

When you sell

A GST-registered business charges GST when it sells a business vehicle, even to a private buyer. Under the general depreciation rules, the sale proceeds after that GST then settle the income tax: the business share of any amount above the written-down value is taxable, and the business share of any shortfall is deductible. If the car is in the small business pool instead, the business share of the proceeds reduces the pool balance.

Worked example: a $55,000 ute over 5 years

Here's what buying a car through a business is worth over the time you own it, on these assumptions:

• A sole trader registered for GST, on the 30% marginal tax rate (the 2% Medicare levy isn't included)
• A $55,000 ute, GST included, used 80% for business
• A chattel mortgage for $55,000 at 7.5% over 5 years, with total interest of about $11,125
• Running costs of $6,000 a year, with GST credits on running costs left out for simplicity
• Depreciation under the general rules, not the small business pool
• The ute sold after 5 years for $22,000, an assumed price

Owning the ute costs about $74,125 over the 5 years: the $55,000 price, less the $22,000 sale price, plus $11,125 in interest and $30,000 in running costs. The tax treatment gives back about $19,710 of that, or roughly 27%. On the 37% marginal rate, the income tax part rises from $17,310 to about $21,350.

The $400 is a GST adjustment for the 20% private use: because 80% of the GST was claimed on the purchase rather than 100%, 20% of the GST on the sale comes back. It can also nudge the income tax on the sale slightly; here the effect is under $100. The saving is real, but it's well short of the car's price, and it shrinks as private use grows. To see the repayments for your own numbers, use our business car loan calculator.

When buying a car through a business doesn't pay off

Buying a car with an ABN isn't automatically the better choice. The benefit is smaller, or disappears, when:

• Business use is low. For a sole trader or partnership, the deductions and the GST credit scale with business use, while the record-keeping stays the same.
• The business isn't registered for GST. There's no GST credit, which in the example above is the part you get back first.
• The car costs more than the car limit. When you buy a car designed mainly for passengers, depreciation and the GST credit stop at the limit, so the extra price earns nothing.
• A company owns the car and a director or employee uses it privately. Fringe benefits tax may then apply, which our guide to company car policies covers.

If most of the driving is personal, a personal loan may be simpler. Our comparison of business and personal car loan costs sets out the trade-offs.

What you need to buy a car through your business

• An active ABN, and if you're borrowing, finance in the business's name, such as a business car loan. Our guide to ABN car loan requirements lists the documents by ABN age and structure.
• GST registration to claim the GST credit.
• Records of business use. A sole trader using the logbook method keeps a logbook covering at least 12 continuous weeks, which then applies for up to 5 years. Companies keep records of actual costs and private use.
• A tax invoice for the purchase.

For how each deduction is worked out, including the car limit, the logbook and fringe benefits tax, see our full guide to car loan tax deductions.

Common mistakes that cost ABN holders money

Claiming the full GST credit on a car that's partly private

For a sole trader or partnership, the credit follows business use. Claim 80% of the GST if the car is used 80% for business, not 100%.

Forgetting the sale

GST is charged when a GST-registered business sells the car, and under the general depreciation rules a sale above the written-down value adds taxable income. Budget for both when you plan to trade up.

Assuming a ute is exempt from the car limit

A ute designed to carry one tonne or more is outside the car limit, 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. Check the exact variant with your tax adviser.

Choosing the finance structure on rate alone

A chattel mortgage, hire purchase and a lease give different timing for the GST credit and deductions. Talk to your accountant about the tax treatment before you sign, then compare rates.

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