If you are planning to purchase or lease a vehicle for your business this financial year, there are a few updated thresholds worth understanding before you sign anything.
The limits that apply from 1 July 2026 affect how much you can claim in tax depreciation deductions, what GST credits are available, and whether luxury car tax could apply to your purchase. Getting across these numbers early can help you make a more informed decision and avoid unexpected costs down the track.
The Car Limit: What It Means for Depreciation
For vehicles first used or leased in the 2026-27 income year, the car limit is $69,883.
This figure represents the maximum value that can be used when calculating tax depreciation deductions for a passenger vehicle, regardless of what you actually paid for the car.
If you purchase a vehicle above the car limit, the portion of the purchase price above $69,883 will generally not attract depreciation deductions.
This does not mean a more expensive vehicle cannot make sense for your business. There may be perfectly good operational or commercial reasons to choose a higher-value vehicle. But from a tax perspective, it is worth understanding the effective ceiling on what you can claim before committing to a purchase.
If the vehicle is used for both business and private purposes, which is common for many business owners, deductions are generally only available for the business-use portion. Maintaining a valid logbook and odometer readings remains important for supporting those claims if the ATO ever seeks clarification.
For business owners looking to minimise their overall tax position, considering the total after-tax cost of a vehicle, rather than just the purchase price, is often a more useful way to frame the decision. In many cases, a vehicle priced around the car limit may deliver similar practical benefits while maximising the available deductions.
It is also worth confirming which depreciation rules apply to your circumstances, including whether any simplified depreciation concessions are available to allow deductions to be claimed at a faster rate.
GST Credits: Also Subject to a Cap
If your business is registered for GST, you may be entitled to claim a GST credit when purchasing a business vehicle. However, where the purchase price exceeds the car limit, the GST credit is also capped.
For the 2026-27 financial year, the maximum GST credit available for passenger vehicles is $6,353, being one-eleventh of the $69,883 car limit.
Even if the vehicle costs considerably more, the GST credit will generally not increase beyond this amount.
One thing worth noting on the other side of the transaction: when the vehicle is eventually sold, GST will generally be payable on the full sale price, not just the capped amount.
GST credits on business vehicle purchases can provide a meaningful short-term cash flow benefit, so it is important to ensure they are claimed correctly and within the relevant time limits through your Business Activity Statement.
Luxury Car Tax: Updated Thresholds From 1 July 2026
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$91,661 for fuel-efficient vehicles
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$80,809 for all other vehicles
Where LCT applies, it is generally imposed at 33% of the vehicle's value above the relevant threshold, which can add meaningfully to the overall purchase cost.
For businesses considering a premium vehicle, the LCT threshold is an important part of the purchasing decision.
It is worth noting that many fuel-efficient vehicles, including a range of hybrid and electric models, benefit from the higher $91,661 threshold. Depending on the vehicle selected, this could reduce the amount of LCT payable while also delivering lower running costs over time.
If you are considering an electric vehicle for your business or through a salary packaging arrangement, our earlier blog on the EV FBT exemption wind-back is also worth reading alongside this one.
Buying vs Leasing: Worth Considering
Before committing to a purchase, it is worth thinking through whether buying or leasing is more appropriate for your circumstances.
The depreciation and GST treatment differs between the two structures, and the right answer will depend on factors including how the vehicle will be used, your cash flow position, and your broader business plans. Cash flow forecasting can be a useful tool here, particularly where a vehicle purchase represents a significant outlay relative to your operating position.
A Few Things to Consider Before You Sign
The updated thresholds apply to vehicles first used or leased from 1 July 2026, making now a practical time to think through any planned vehicle purchases.
- The total after-tax cost of ownership, including depreciation deductions, GST credits, and any LCT
- Whether purchasing or leasing is more suitable for your circumstances
- The expected business use of the vehicle and the records you will need to maintain
- How the purchase fits within your broader cash flow and business strategy
Make an Informed Decision
A business vehicle is often a significant investment. Tax considerations should not be the only factor in the decision, but they can meaningfully influence the overall cost of ownership.
If you would like to understand how these thresholds apply to a vehicle you are considering, we are happy to talk through the numbers before you commit to anything.
Reach out to the Trekk Advisory team and we can work through the likely tax outcomes based on your specific circumstances.
For further detail on the updated figures, the ATO's guidance on car thresholds from 1 July 2026 is a useful reference point.
Trekk Advisory provides accountant-led tax, bookkeeping, and advisory services for Australian business owners. This article is general in nature and does not constitute personal advice. Please speak with a qualified adviser regarding your specific circumstances.
