For many business owners, vehicle purchases can provide valuable tax deductions. However, the car depreciation limit determines how much of a passenger vehicle’s value you can use to calculate depreciation deductions.
For the 2024–2025 financial year, the car depreciation limit is $69,674. If you purchase a passenger vehicle for more than this amount, you generally cannot claim depreciation on the amount above the limit.
Understanding how the limit works can help you plan vehicle purchases and manage your business tax obligations.
What Is the Car Depreciation Limit?
The Australian Taxation Office (ATO) sets a maximum value for passenger vehicles when businesses calculate depreciation deductions.
For the 2024–2025 financial year, that limit is $69,674.
For example, if you purchase a passenger vehicle for $80,000 and use it for business purposes, you generally calculate depreciation using the $69,674 limit rather than the full $80,000 purchase price.
Key Points
- Business or work use: The limit applies when you use a vehicle to carry on a business or for work-related purposes. If you also use the vehicle privately, you must account for the private-use portion.
- First use or lease: The limit applies to vehicles first used or leased during the 2024–2025 financial year.
- Passenger vehicles: The limit applies to passenger vehicles. Different rules can apply to commercial vehicles, trucks, utes and vans, depending on their design and carrying capacity.
Why Does the Car Depreciation Limit Matter?
Understanding the car depreciation limit can help you make better vehicle purchasing and tax-planning decisions.
1. It Limits Your Depreciation Deduction
You can only use up to $69,674 of a passenger vehicle’s value when calculating depreciation for the 2024–2025 financial year.
If you purchase a vehicle for more than $69,674, you cannot claim depreciation on the excess amount. This makes the limit important when you compare different vehicle options.
2. It Can Affect Your GST Credit
GST-registered businesses may also face a limit on the GST credit they can claim for a vehicle.
For the 2024–2025 financial year, the maximum GST credit is generally one-eleventh of $69,674, or approximately $6,334.
If you need help understanding the GST treatment of your vehicle purchase, speak with your business accountant.
3. It Affects Your Depreciation Calculation
The car limit affects the amount you can use when calculating depreciation.
Depending on your circumstances, you may use methods such as the prime cost or diminishing value method. However, the car depreciation limit still restricts the vehicle value you can use for depreciation purposes.
How Is the Limit Applied?
Several factors can affect how the limit applies to your vehicle.
New vs Used Vehicles
The car limit can apply to both new and second-hand passenger vehicles.
If the vehicle’s relevant cost exceeds $69,674, you generally use the capped amount when calculating depreciation.
For GST-registered businesses, you may need to account for any available GST input tax credit when determining the vehicle’s depreciable cost.
Business and Personal Use
You must apportion your claim if you use the vehicle for both business and private purposes.
For example, suppose you use your vehicle 80% for business and 20% privately. Your maximum depreciable amount would be:
$69,674 × 80% = $55,739
You would therefore calculate depreciation on a maximum amount of $55,739, subject to the applicable tax rules.
Depreciation Methods
The method you use to claim vehicle expenses depends on your circumstances.
The logbook method requires you to keep appropriate records of your vehicle expenses and business use. Other methods may apply in certain circumstances.
If you are unsure which method applies to you, contact your business accountant for advice.
- Practical Example
Imagine that your business purchases a passenger vehicle for $80,000 including GST during the 2024–2025 financial year.
Because the purchase price exceeds the $69,674 car depreciation limit, you cannot use the full $80,000 to calculate depreciation.
If you use the vehicle entirely for business, the maximum amount available for depreciation is generally $69,674.
Now suppose you use the vehicle 70% for business and 30% privately.
Your maximum depreciable amount would be:
$69,674 × 70% = $48,772
You would therefore calculate depreciation on a maximum amount of $48,772, subject to the relevant tax rules.
For GST purposes, a GST-registered business may also have a maximum input tax credit of approximately $6,334, based on one-eleventh of the $69,674 car limit.
If you have questions about your circumstances, speak with a financial advisor in Melbourne.
Practical Example
Imagine you purchase a vehicle for business use at a price of $80,000 (including GST). Since $80,000 exceeds the car depreciation limit of $69,674, you can only claim depreciation on $69,674. If you use the car exclusively for business or work, your depreciation deductions will be calculated on this capped amount. However, if your car is used 70% for business/work and 30% for private use, then you would only be able to claim depreciation on 70% of $69,674 which is $48,772 ($69,674 x 70% = $48,772).
Similarly, for GST purposes, if you’re registered for GST, your maximum input tax credit would be calculated as one-eleventh of $69,674—approximately $6,334—regardless of whether the actual purchase price is higher. Please don’t hesitate to contact your financial advisor Melbourne if you have any questions about this example.
What Has Changed?
The ATO periodically updates the car depreciation limit.
For the 2024–2025 financial year, the limit increased to $69,674. The updated threshold reflects changes in vehicle costs and economic conditions.
However, the increase does not remove the cap. Businesses purchasing higher-priced passenger vehicles still cannot use the full purchase price when calculating depreciation.
The purpose of the car limit is to restrict the tax deduction available for higher-priced passenger vehicles. In simple terms, the tax rules do not allow businesses to claim depreciation on the entire cost of an expensive passenger vehicle.
Key Takeaways
- Car depreciation limit: The 2024–2025 limit is $69,674.
- GST credit: The maximum GST credit is generally one-eleventh of $69,674, or approximately $6,334, for eligible GST-registered businesses.
- Business use: You must generally apportion your claim when you use a vehicle for both business and private purposes.
- Record keeping: Keep appropriate records, including logbooks where required, to support your vehicle-related claims.
- Tax planning: Understanding the limit before purchasing a vehicle can help you assess the potential tax benefits and overall cost.
Final Thoughts
The car depreciation limit can have a significant impact on the tax deductions available when your business purchases a passenger vehicle.
For the 2024–2025 financial year, the $69,674 limit means you cannot generally calculate depreciation on the full cost of a vehicle that exceeds this amount.
The way you claim vehicle expenses will depend on factors such as your business use, private use, GST registration and the depreciation method that applies to you.
If you are unsure how the car depreciation limit affects your business, speak with a business accountant. Professional advice can help you claim eligible deductions while meeting your ATO obligations.
