“I’ll just write the car off” might be the most misunderstood sentence in Australian small business tax. Writing off a car does not mean the government pays for it, and it does not mean free money — it means claiming a tax deduction for the business portion of the car’s decline in value. How fast you can claim it, how much of the price counts, and what happens when you sell the car are governed by a layered set of rules: the instant asset write-off, the small business pool, the car limit, the luxury car tax thresholds and the balancing adjustment on disposal. Get the layers in the wrong order and you can overstate a claim by tens of thousands of dollars.

This deep dive from Trinity Accounting Practice sets out the car write-off rules as they stand in mid-2026 — what each rule does, where the caps bite, and a worked example following one vehicle from purchase to sale.

What “writing off a car” actually means

A write-off is depreciation: a deduction for the decline in value of an asset used to produce income. Three things follow from that definition:

It is a deduction, not a refund. A $20,000 deduction saves a company at the 25% rate about $5,000 in tax — not $20,000.
Only the business-use portion counts. A car used 60% for business gives you 60% of the available deduction. Private use is never deductible.
The tax system keeps score. When you later sell the car, the difference between the sale price and the written-down value comes back as assessable income or a further deduction — the balancing adjustment most owners forget about.

The instant asset write-off — and why most cars miss it

The instant asset write-off lets a small business (aggregated turnover under $10 million) deduct the full business-use cost of an eligible asset in the year it is first used or installed, instead of depreciating it over years. The legislated threshold is $20,000 per asset through to 30 June 2026. In the Federal Budget on 12 May 2026, the government proposed making the $20,000 threshold permanent from 1 July 2026 — but at the time of writing that measure has not yet been legislated, so treat it as a proposal, not law.

Here is the uncomfortable truth: very few cars cost under $20,000. A second-hand van or an older ute might qualify; the average new vehicle will not. The threshold applies to the business-use cost — so a $30,000 car at 60% business use ($18,000) can technically come in under the line — but for most new-car purchases, the instant write-off headline simply does not apply. The detailed rules are on the ATO’s instant asset write-off page. We cover the broader write-off rules in Trinity’s instant asset write-off guide.

The small business pool — 15% then 30%

Cars above the instant write-off threshold typically go into the general small business pool under the simplified depreciation rules:

15% deduction in the first year (regardless of when in the year you bought it), then
30% of the remaining pool balance each year after that.

A $54,000 business-use cost car generates roughly $8,100 in year one, then about $13,770 in year two, $9,639 in year three, and so on — a declining curve that claims most of the value within four to five years. If the pool balance falls below the instant asset write-off threshold at year end, the whole remaining balance can be deducted at once.

The car limit — the cap nobody mentions at the dealership

For 2025–26, the car limit is $69,674. For a car (a vehicle designed to carry fewer than nine passengers and less than one tonne), this caps:

Depreciation — no matter what you paid, the maximum depreciable cost is $69,674. Buy a $110,000 vehicle and roughly $40,000 of the price is simply never deductible.
GST credits — capped at one-eleventh of the limit, a maximum of $6,334, even on a far more expensive car.

Some commercial vehicles — utes and vans with a payload over one tonne that are not designed principally for carrying passengers — fall outside the car limit. This is why the dual-cab ute question gets technical: payload and passenger capacity determine whether the cap applies, and the answer is vehicle-specific.

Luxury car tax — a separate cost layer

Luxury car tax (LCT) of 33% applies to the GST-inclusive value above the threshold: for 2025–26, $91,387 for fuel-efficient vehicles (combined consumption of 3.5 litres per 100 km or less) and $80,567 for other vehicles. LCT is paid on purchase, is not claimable as a credit by most businesses, and stacks on top of the car-limit problem: an expensive car attracts extra tax going in and capped deductions coming out. Tax-wise, prestige vehicles are about the least efficient asset a small business can buy.

Cents per kilometre vs logbook — the apportionment methods

Sole traders and partnerships choose between two claim methods each year:

Cents per kilometre: 88 cents per business kilometre in 2025–26, capped at 5,000 km — a maximum claim of $4,400. The rate bundles in depreciation, so you cannot claim it separately.
Logbook method: a continuous 12-week logbook establishes your business-use percentage, which you then apply to all actual costs including depreciation. Higher claims for genuinely high business use, but the record-keeping must be real.

Companies and trusts do not use these methods — they claim actual costs and deal with private use through FBT, which is a different conversation (see our guide on whether your small business should buy a car at all).

Selling the car — the balancing adjustment

This is the rule that surprises people years later. When you sell, trade in or scrap a business vehicle, you compare the sale proceeds (business-use portion) with the car’s written-down value:

Sell for more than the written-down value → the excess is assessable income. For pooled assets, the business-use portion of the proceeds is deducted from the pool, and a pool balance pushed below zero becomes assessable.
Sell for less → broadly, you get a further deduction.

Utes and vans have held second-hand value well in recent years, so a healthy assessable balancing adjustment on sale is common. If you claimed an instant write-off and the car later sells for $25,000, that $25,000 (business portion) is income. The write-off was a timing benefit, not a permanent one — the system claws back what you over-claimed against the car’s real decline in value. GST also generally applies on the sale price if you are registered.

Worked example — one ute, purchase to sale

A Hurstville electrical contractor (company, GST-registered, turnover $900,000) buys a $66,000 GST-inclusive work ute on 1 August 2025, 90% business use under a logbook. The ute’s payload keeps it under the car-limit exemption threshold, so assume the car limit applies for caution.

GST credit: $6,000 × 90% = $5,400 claimed on the next BAS (under the $6,334 cap).
Depreciable cost: $60,000 (GST-exclusive) × 90% = $54,000 into the small business pool.
Year 1 deduction: $54,000 × 15% = $8,100. Tax saved at 25% ≈ $2,025.
Year 2 deduction: $45,900 × 30% = $13,770. Tax saved ≈ $3,443.
Year 3 deduction: $32,130 × 30% = $9,639. Tax saved ≈ $2,410.

After three years the ute’s pool value is about $22,491. The contractor trades it in for $38,000 (GST-inclusive). The business portion of the GST-exclusive proceeds — $34,545 × 90% ≈ $31,091 — is deducted from the pool. Because that exceeds the remaining pool value attributable to the ute, a significant assessable amount arises. Over the full cycle, the contractor deducted the ute’s genuine decline in value — roughly $23,000 — not the sticker price. That is what “writing off a car” really delivers.

A Trinity insight from 22 years in practice

Every June we hear some version of “my mate said buy a ute before 30 June and write the whole thing off.” In 22 years that sentence has been fully accurate perhaps a handful of times — usually for a cheap second-hand vehicle in a high-turnover year. For everything else, the car limit, the pool rates and the balancing adjustment mean the real benefit is the tax rate applied to genuine business-use depreciation, spread over several years, partly clawed back on sale. That is still worth having — but it should change your decision by thousands, not tens of thousands. The clients who do best treat the write-off as a discount on a vehicle they needed, not a reason to upgrade.

What this means for you

If you are planning a vehicle purchase before 30 June: check whether the business-use cost actually falls under $20,000 before relying on the instant write-off.
If you are eyeing a car above $69,674: everything over the car limit is non-deductible and your GST credit is capped at $6,334 — price that in.
If you are buying a dual-cab ute: have the payload and passenger-capacity test checked — it determines whether the car limit applies at all.
If you claimed a big write-off and are now selling the vehicle: budget for the assessable balancing adjustment before you spend the trade-in money.
If you claim the logbook method: make sure your 12-week logbook is current — it expires in practice when your usage pattern changes.
If you are waiting on the permanent $20,000 threshold: the Budget announcement is not yet law — plan on the legislated rules.

How Trinity can help

Trinity Accounting Practice models vehicle write-offs before clients buy: instant write-off eligibility, pool projections, car-limit and LCT impact, GST credits and the eventual balancing adjustment, all in one before-and-after comparison. We run depreciation schedules through Xero so the numbers in your accounts match the claim in your return, and we time disposals around your profit year where the rules allow.

Get Trinity to model your vehicle write-off 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.