“Should I buy the car through the business?” is one of the most asked — and most badly answered — questions in Australian small business tax. The honest answer depends on your structure, the price of the car, how much of the driving is private, and three dollar caps most buyers have never heard of until the deduction comes back smaller than the dealer implied. The tax benefits are real; so are the limits, and the fringe benefits tax bill that arrives when a company car spends its weekends at the beach.

This guide from Trinity Accounting Practice focuses on the how: which structure claims what, the 2025–26 caps and thresholds, and worked numbers for the decisions that actually move money. For the threshold question of whether your business should buy a car at all, and the detailed write-off mechanics, see our companion posts on whether a small business can buy a car and the car write-off rules — and our earlier piece on the tax benefits of buying a car.

Who can claim what — sole trader, company, trust

The structure that owns the car determines the shape of the claim:

Sole traders and partnerships claim the business-use percentage of car costs in their own return, using either the logbook method or cents per kilometre. There is no FBT, because you cannot provide a fringe benefit to yourself — but you also only ever deduct the business proportion.
Companies deduct the full running and depreciation costs of a car the company owns. The catch: any private use by a director or employee (including driving it home) is a car fringe benefit, and the company may pay fringe benefits tax (FBT) at 47% on the taxable value. With a company car, the tax system claims its share through FBT instead of denying the deduction.
Trusts sit in between: a trading trust deducts business-proportion costs, and FBT can apply where the car is provided to employees (including working beneficiaries treated as employees).

The recurring mistake is buying the car in the company “for the deduction” without pricing the FBT. Under the statutory formula method, the taxable value is generally 20% of the car’s base value per year, regardless of how little private use occurs — and FBT at 47% on the grossed-up amount can exceed the tax saved by the deduction.

The three caps that shrink the brochure numbers

Car limit (depreciation cost limit): $69,674 for 2025–26. Depreciation claims on a “car” (designed to carry under one tonne and fewer than nine passengers) are capped at this figure no matter what you paid. A $110,000 vehicle depreciates, for tax purposes, as if it cost $69,674.
GST credit cap: $6,334 for 2025–26. One-eleventh of the car limit. Spend $110,000 including $10,000 of GST and the claimable credit still stops at $6,334 (times the business-use percentage).
Luxury car tax (LCT) thresholds: $91,387 for fuel-efficient vehicles (3.5L/100km or less) and $80,567 for others in 2025–26. Above these, LCT of 33% applies to the excess — and LCT is not claimable or deductible. It simply makes the car dearer.

One genuine carve-out: many utes and vans designed to carry one tonne or more are not “cars” for these rules, so the car limit and GST cap may not apply — one reason dual-cab marketing leans so hard on tradies. Whether a specific dual-cab qualifies depends on its payload and design, so check before assuming.

The $20,000 instant asset write-off rarely helps with cars

The instant asset write-off lets small businesses immediately deduct assets costing under $20,000 — legislated to 30 June 2026, with the May 2026 Budget proposing to make the $20,000 threshold permanent from 1 July 2026 (announced but not yet law). The era of temporary full expensing, when whole vehicles could be written off in year one, is over. Since very few roadworthy business vehicles cost under $20,000, most car purchases now depreciate over several years instead — typically via the small business pool at 15% in year one and 30% thereafter, subject to the car limit. Budget the cash flow accordingly: the deduction arrives over years, not at settlement.

Electric vehicles — the FBT exemption that changes the maths

Battery electric and hydrogen fuel-cell vehicles priced below the fuel-efficient LCT threshold ($91,387) can be exempt from FBT — which removes the single biggest cost of running a car through a company with private use. Three caveats:

Plug-in hybrids (PHEVs) lost the exemption from 1 April 2025, except where a pre-existing binding commitment continues. A PHEV ordered today is generally not exempt.
The exempt benefit is still reportable on the employee’s income statement, which can affect things like Medicare levy surcharge and family payments.
The government has announced the exemption will be narrowed from April 2027 and replaced with a smaller concession later — so the full benefit window may be closing. Treat current settings as current, not permanent.

Logbook vs cents per kilometre — and the novated alternative

For sole traders (and employees claiming work travel), two methods exist:

Cents per kilometre: 88 cents per business kilometre, capped at 5,000 km — a maximum claim of $4,400, no logbook needed, but it covers everything (depreciation, fuel, the lot).
Logbook method: keep a valid 12-week logbook, then claim the business percentage of all actual costs including depreciation (capped at the car limit) and interest. For genuinely high business use, this almost always produces the larger claim.

A third path for employees — including owners who pay themselves a salary — is a novated lease: the employer makes lease payments from pre-tax salary. It shifts the car cost out of post-tax income and is particularly powerful when combined with the EV FBT exemption, where the whole package can run FBT-free. It is a salary-packaging decision as much as a tax one, and the finance pricing matters as much as the tax.

Worked example — the $95,000 SUV vs the $68,000 EV

A Kogarah building company director wants a new vehicle, used roughly half privately. Option A is a $95,000 diesel SUV; Option B a $68,000 battery EV.

Option A — $95,000 SUV in the company. LCT applies above $80,567 (roughly $4,300 of unclaimable tax built into the price). GST credit capped at $6,334, not the ~$8,600 in the price. Depreciation capped at the $69,674 car limit — about $25,000 of the cost never depreciates. Then FBT: statutory formula on a ~$90,000 base value is a taxable value of ~$18,000, producing an FBT bill in the order of $17,000 every year the private use continues. Over four years, FBT alone can approach $70,000.

Option B — $68,000 EV in the company. Under both the car limit and the fuel-efficient LCT threshold: no LCT, full $6,182 GST credit claimable (under the $6,334 cap), full cost depreciable. And because the EV exemption applies, the annual FBT bill is nil — despite identical private use. The four-year tax difference between the two options comfortably exceeds $80,000. The SUV is not “wrong” — but the director should choose it knowing the number, not discover it at the first FBT return.

A Trinity insight from 22 years in practice

The most expensive sentence in this topic is “the dealer said it’s all deductible.” Dealers sell cars; the caps, the FBT and the private-use apportionment are not their problem, and June is their best month precisely because buyers rush the decision for a deduction that the car limit then cuts down. Our rule after 22 years: the structure and method decision is worth more than the timing decision. Ten minutes with your accountant before you sign — checking the car limit, the LCT line, the FBT exposure and whether a novated lease beats company ownership — routinely changes the outcome by five figures. After delivery, almost nothing can be restructured.

What this means for you

If you are buying a car over $69,674 in 2025–26: depreciation and GST credits are capped — get the after-cap numbers before you commit.
If a company car will see private use: price the FBT (statutory formula, 20% of base value) before purchase, not at the first FBT return.
If you are considering an EV under $91,387: the FBT exemption may be the single largest tax saving available on a vehicle right now — and the window is narrowing from 2027.
If you were counting on a PHEV exemption: it generally ended 1 April 2025 for new arrangements.
If you are a sole trader doing under ~5,000 business km: cents per kilometre (88c, max $4,400) may beat the logbook hassle; high business use flips the answer.
If you draw a salary from your own company: compare a novated lease against company ownership — for EVs especially, it is often the stronger package.
If you want the prerequisite questions: see our companion guides on whether your small business should buy a car and how the write-off rules work, plus our earlier tax benefits of buying a car post.

How Trinity can help

Trinity Accounting Practice models vehicle purchases before clients sign — structure comparison (sole trader, company, trust, novated lease), car limit and LCT impact, GST credit calculation, FBT exposure under both the statutory formula and operating cost methods, and the EV exemption where it applies. Through our finance arm we can also line up the vehicle finance comparison alongside the tax numbers, so the whole decision is made once, with everything on the table.

Run the numbers with Trinity before you buy →

General advice only. This article contains general information current as at June 2026 and does not constitute tax, financial or legal advice. It does not take into account your personal circumstances, objectives or needs. Before acting on any information in this article, you should consider its appropriateness to your situation and seek professional advice from Trinity Accounting Practice or another qualified adviser. Liability limited by a scheme approved under Professional Standards Legislation.