Tax Deductions for Business Vehicle Loans in Australia

If you use a vehicle to earn business income, the way you finance it affects what you can claim at tax time. This guide covers the main rules for Australian businesses in plain English. Tax rules have plenty of exceptions, so use it to prepare for a conversation with your accountant, not instead of one.

The big picture: you claim the costs, not the repayments

A common misunderstanding is that loan repayments are tax deductible. They aren't, at least not the principal. With a car loan or chattel mortgage, you generally own the vehicle, so what you claim (for the business-use portion) is:

• Interest on the loan
• Depreciation on the vehicle's cost
• Running costs such as fuel, servicing, registration and insurance

A balloon or residual payment at the end of the loan is repayment of principal, so it isn't a deduction in itself.

Chattel mortgage, lease or novated lease?

• Chattel mortgage (business car loan): you own the vehicle from day one and the lender takes security over it. You claim interest and depreciation. If you're registered for GST, you can generally claim the GST credit on the purchase price in the activity statement for the period you buy it, subject to the limit below.
• Finance lease: the financier owns the vehicle and you pay rent. Lease payments are generally deductible for the business-use portion. According to the ATO, GST credits on lease payments aren't capped by the car limit. At the end you usually pay a residual to buy the vehicle.
• Novated lease: for employees, not business owners. Your employer pays the lease from your pre-tax salary. It involves fringe benefits tax (FBT), and eligible electric cars can be exempt from FBT.

Key limits for 2025–26 and 2026–27

• Car limit: the most you can use to calculate depreciation on a car is $69,674 for 2025–26 and $69,883 for 2026–27. If your car costs more, depreciation is capped at the limit.
• GST credit cap: the maximum GST credit on buying a car is one-eleventh of the car limit: $6,334 for 2025–26 and $6,353 for 2026–27.
• Instant asset write-off: small businesses with aggregated turnover under $10 million can immediately deduct eligible assets costing less than $20,000 each. This threshold has now been made permanent from 1 July 2026. Most cars cost more than this, so for vehicles it mostly helps with cheaper second-hand purchases. Anything over the threshold goes into your small business depreciation pool instead.

Utes and vans: not always a "car"

For tax purposes, utes and panel vans designed to carry one tonne or more aren't classed as cars. That means the car limit doesn't cap their depreciation. It also means sole traders can't use the cents per kilometre or logbook methods for them, and must claim actual costs instead. Check the manufacturer's payload specification, not just the badge.

Sole traders and partnerships: two methods for car expenses

• Cents per kilometre: a set rate per business kilometre (88 cents for 2025–26), up to 5,000 km per car. It covers all running costs including depreciation. Simple, but capped.
• Logbook method: keep a logbook for at least 12 continuous weeks to work out your business-use percentage, then claim that percentage of actual costs, including interest and depreciation. It's usually better for higher-mileage vehicles.

Companies and trusts: watch for FBT

If your company owns the vehicle and you or employees use it privately, FBT may apply. Some commercial vehicles with only minor, incidental private use can be exempt. This is one to get right with your accountant.

Practical tips

1. Decide how the vehicle will be owned (you, your company or your trust) before you apply for finance. The finance should be in the same name.
2. Keep your logbook, fuel receipts and loan statements together from day one.
3. Ask your broker for a clear breakdown of interest versus principal each year. Your accountant will need it.

Related guides

• Can you claim a car loan on your tax return?
• Is leasing a car on an ABN tax-efficient?
• How GST affects car finance for businesses
• Small business car loans

General information only, based on ATO guidance available in September 2026. This isn't tax or financial advice and doesn't take your circumstances into account. Speak to a registered tax agent about your situation. Finance the Ride is a referral service and doesn't hold an Australian Credit Licence. Last reviewed September 2026.