5 Things to Consider Before Buying a Car for Business Use

Investing in a new vehicle for your business is a big step. But before you spend your hard-earned money buying a car for business use, it’s important to consider how it will impact your tax position and, specifically, how you can minimise your tax liabilities and avoid common tax mistakes that may trigger an audit.

As a guide, here are 5 key things to things to consider before purchasing a vehicle for business:

1. Is It For Business or Personal Use?

Do you plan to use the vehicle primarily for business, or will it be your personal vehicle as well?

This matters because you can only claim deductions for expenses incurred when using a car for business. The more you use the car for personal activities, the fewer deductions you can claim.

It’s important that you keep meticulous records of your business and private trips. That allows you to calculate the business portion of expenses like fuel and depreciation, and only claim those on your tax returns. The most common way to do this is using a 12-week logbook, which captures your typical usage of the car throughout the rest of the year.

Without proper records, your claims can be rejected.

2. Which Deductions Can You Claim (and How Much)?

If you’re buying a car for work purposes, you can claim deductions on fuel, oil, servicing and repairs, car loan interest, insurance premiums, lease payments, registration costs, and depreciation.

Remember, you can claim only for the business portion of the expenses, so keep accurate records to support your claims.

Say you use the car for business half of the time, and the rest of the time it’s your personal car. If your fuel usage for the year is $4,000, you can only claim a deduction for $2,000.

When it comes to depreciation, the ATO offers two options depending on the price of the vehicle.

If the car costs less than $20,000, you can claim an immediate deduction on the entire purchase cost. This is called an instant asset write-off and is available only to small businesses with less than $10 million in annual turnover.

As with other deductions, you can only claim for the business portion of depreciation. Say you buy a used panel van for $15,000, and you estimate that you used the car for business purposes 70% of the time. You can claim a deduction of $10,500 (70% of $15,000).

However, if the vehicle costs more than $20,000, then it does not qualify for the instant asset write-off, and normal small business depreciation rules apply.

Note that there’s a limit on how much you can claim for depreciation if it’s a passenger car. For the 2025-26 FY, it is $69,674. Commercial vehicles don’t have a depreciation limit.

3. Who Owns the Car?

While buying a car through your business can make for clearer business-use deduction claims, it can attract Fringe Benefits Tax (FBT) when employees use the vehicle for personal activities.

Also consider asset protection. A vehicle owned in the company’s name is at risk in case of legal claims by creditors or other entities.

If you personally own the car, it gives you more flexibility over how you can use it without worrying about FBT. But you’ll need to keep records showing separate business and private use. This lets you claim a deduction for business uses.

4. How Will You Finance the Company Car?

How you finance the vehicle purchase has tax implications.

If you buy the car outright, you can claim GST credits for the GST included in the price of the car up to a value of $69,674 during the 2025-2026 FY. If you lease the car, you can claim GST credits for the GST in the lease payments.

If you get the car on hire purchase, the ATO allows you to claim the full GST amount during the year when you make the first instalment. You can also claim the GST upfront if you use a chattel mortgage, since you own the car.

How you finance the company car also affects FBT and tax deductions, so make sure you understand the tax rules for each option beforehand to avoid penalties or audits.

5. Incentives on EVs

Whether you buy a fully electric car, a hybrid, or an internal combustion (petrol/diesel) car determines your FBT liabilities.

Currently, fully electric cars are exempt from FBT (though there are additional conditions you have to meet). If you plan to give a new car to an employee for personal use, opting for an electric car can help reduce your tax.

Plug-in hybrid cars were also exempt from FBT, but are no longer so starting 1 April 2025.

Structure Your Next Asset Purchase With PCR

At PCR, we provide financial and tax planning services that help you avoid costly mistakes and maximise tax advantages when purchasing a car for business use or exploring tax-effective ways to manage car expenses.

Chat with us today and let’s build a financial plan that saves you money and grows your business. Enquire online today.

Disclaimer: This blog post is for informational purposes only and should not be considered as financial or legal advice. Consult with a qualified professional for personalised guidance based on your specific circumstances.