Instant Asset Write-Off for Cars: What You Can Claim

The instant asset write-off limit is $20,000, so a car costing $20,000 or more cannot be written off in one go at all. It goes into the small business pool instead, at 15% in the first year and 30% each year after. A second cap, the car limit of $69,883 for 2026-27, applies on top.

One timing point before anything else: the ATO applies that $20,000 limit to assets first used or installed ready for use up to 30 June 2026, and the measure extending it from 1 July 2026 is, in the ATO's words, not yet law. The write-off still decides which of two very different deduction paths a vehicle purchase takes, and the difference is years of cash flow rather than a few dollars.

Everything below comes from the ATO's own pages, including its two worked examples on a car and a ute. Every figure was read off an ATO page on 13 August 2026, and each one's income year is named where it matters, because the two caps here do not move on the same clock.

Can you use the instant asset write-off on a car?

The instant asset write-off lets an eligible business deduct the full cost of an asset in the income year it is first used or installed ready for use, rather than depreciating it over several years. The limit is $20,000 per asset, for businesses with an aggregated turnover of less than $10 million that apply the simplified depreciation rules. The ATO applies that limit to assets first used or installed ready for use from 1 July 2023 to 30 June 2026, so the 2026-27 income year sits outside the published range and the position for it is the announced measure rather than settled law.

The $20,000 is tested against the total cost of the asset, not against the business-use portion. The ATO's own example makes the point: a $40,000 ute used 40% for business has a business portion of $16,000, and the write-off is still unavailable because the total cost exceeds $20,000.

That ordering is the part that catches people out. Apportioning for business use first and then testing the result against $20,000 gives the wrong answer, because the ATO tests the total cost of the asset first.

The two limits that decide what you can claim

A car purchase is tested against two separate caps, and they do different jobs. The instant asset write-off limit decides whether the cost is deductible immediately or has to be pooled. The car limit decides the maximum cost you can use to work out depreciation at all, whichever path you end up on.

The car limit is indexed each year. It was $69,674 for 2025-26 and is $69,883 for 2026-27, a rise of $209.

The car limit does not apply to every vehicle. The ATO applies it to passenger vehicles, other than a motorcycle or similar vehicle, that are designed to carry fewer than 9 passengers and a load of less than one tonne. It does not apply to vehicles that are not passenger vehicles, or to vehicles modified for use by people with disability.

Payload capacity is what decides the one-tonne test, and the ATO defines it precisely: gross vehicle mass as specified on the compliance plate, less the basic kerb weight. Basic kerb weight is the vehicle with a full tank of fuel, oil and coolant, plus the spare wheel, tools and factory-installed options, and it excludes passengers, goods and accessories.

So the same forecourt can hold two vehicles at similar prices where the cap applies to one and not the other. If the car limit does not apply, the ATO says to use the vehicle's cost to work out your depreciation deductions.

What happens instead: the small business pool

An asset costing at or above the instant asset write-off limit goes into the small business pool instead, which on the ATO's published $20,000 limit means an asset of $20,000 or more. The ATO allows a 15% deduction on the business portion in the year the asset is first used or installed ready for use, then 30% each year after the first.

The pool has a write-off of its own. If the pool balance at the end of an income year is less than the instant asset write-off limit, before depreciation deductions are applied, the ATO allows you to deduct the balance.

This is the part worth pricing in before you sign anything. On a pooled car the first-year deduction is 15% of the business portion rather than 100% of it, so the cash-flow benefit arrives across several years instead of one.

How GST changes the number

Whether your business is registered for GST changes the cost you start from. The ATO states that if you are registered and can claim a full GST credit on the purchase, you exclude the GST amount when working out the asset's cost for depreciation. If you can claim only a portion of the credit, the asset's cost is reduced by the portion you can claim.

If your business is not registered for GST, you include the GST you paid in the asset's cost. In the ATO's example, a business that is not registered buys a car for $75,000 including GST, and the most that can be added to its small business pool is the car limit, which was $69,674 for 2025-26.

Cars carry a further GST rule. Where the car limit reduces a car's cost, the ATO caps the GST credit at one-eleventh of the car limit, which is $6,353 for 2026-27 and was $6,334 for 2025-26.

The ATO also states you cannot claim a GST credit for luxury car tax when you buy a luxury car, even if you use it for business purposes.

The ATO's worked examples, in full

Two ATO examples do more work here than any summary. The first is the ute, and it isolates the ordering rule.

Daryl runs a small electrical business with an aggregated turnover of less than $10 million. He buys a ute for $40,000 on 28 July 2025 and estimates he will use it 40% of the time for business. The business portion is $16,000, but the ATO states he cannot use the instant asset write-off because the total cost of $40,000 exceeds the $20,000 limit, so the $16,000 goes to the small business pool.

The second example stacks both caps on a single purchase.

Asha and Raj buy a car in partnership for $80,000 including GST on 15 June 2025, delivered ready for business use on 5 December 2025 and used 75% of the time for business. The car limit for 2025-26 was $69,674, so the most they can claim for depreciation is $52,255, which is 75% of the car limit rather than 75% of the price. The instant asset write-off is unavailable because $80,000 exceeds $20,000, so the $52,255 goes into the pool at 15% then 30%.

The last line of that example is the one to notice. The ATO states the balance of the car's cost, $27,745, cannot be claimed under any other depreciation rules, so it is not deferred to a later year, it is simply not deductible.

What the 2026-27 Budget announced

The $20,000 limit has a moving legislative status, and it is worth knowing which part is settled. The ATO states that the extension of the $20,000 limit for the period 1 July 2025 to 30 June 2026 is now law, under the Treasury Laws Amendment (Strengthening Financial Systems and Other Measures) Act 2025.

What happens from 1 July 2026 is not settled. On 12 May 2026, as part of the 2026-27 Budget, the government announced it will permanently increase the instant asset write-off for small businesses to $20,000 from 1 July 2026. The ATO states plainly that this measure is not yet law.

The announced measure holds the settings where they are rather than changing them. It applies to businesses with an aggregated turnover of less than $10 million, works on a per-asset basis so several assets can each be written off, and leaves assets of $20,000 or more in the pool at 15% then 30%.

One related rule carries its own date. The ATO states the provisions that prevent small businesses from re-entering the simplified depreciation regime for 5 years after opting out continue to be suspended until 30 June 2027.

What to check before you buy

Check the total cost against $20,000 before you check anything else, because that single test decides whether the deduction lands in one year or across several. Check the vehicle's payload capacity against one tonne, since that is what decides whether the car limit applies at all.

Check the date the vehicle will be first used or installed ready for use rather than the date you sign, because the first of those is what the ATO tests. Asha and Raj's car was bought in one income year and delivered ready for use in the next, which is why the ATO spells both dates out and then applies the later year's car limit.

Check whether your business is registered for GST, since it changes the cost you start from and caps the GST credit on a car at one-eleventh of the car limit. Check your aggregated turnover against $10 million, because the simplified depreciation rules are what the instant asset write-off runs on. And confirm the treatment with your tax agent before you commit, since the limit for the current income year is not settled law.

If you are working out how to pay for the vehicle alongside the deduction, our guide to chattel mortgages covers one structure used to finance a business vehicle, and the car loans pillar covers what lenders look at.

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