So, business is going well, and you’re thinking it’s time to upgrade the company wheels. Maybe you’ve got your eye on a sleek, high-end European model or a top-tier SUV. You figure, "Hey, it's a business expense, so I'll just write the whole thing off and claim all the GST back, right?"
Not so fast...
Before you sign on the dotted line at the dealership, you need to know about a little thing the ATO calls the Car Limit.
What is the Car Limit?
Each financial year, the ATO sets a maximum cap on the value of a passenger car that you can use for tax purposes. For the current 2026–27 financial year, that limit is $69,883.
If the car you are buying costs more than that, the ATO steps in and puts a ceiling on two major tax benefits:
The Depreciation Cap:
You can only ever claim depreciation, the expense of a vehicle's decline in value over time, up to that $69,883 amount. Anything you spend above that amount cannot be depreciated for tax purposes, except in specific circumstances (more on that below).
The GST Cap:
You also can’t claim the full amount of GST back if the car crosses the limit. Your maximum GST input tax credit is capped at one-eleventh of the car limit, which works out to a maximum of $6,353.
A Quick Example:
You buy a luxury sedan for $99,000 to use 100% for business.
First, the GST:
Even though you paid $9,000 in GST at the dealership, the ATO caps your the amount your can claim at $6,353 on your BAS.
Next, the remaining cost:
Usually, you get to write off the rest of the car's price on your tax returns over time. But the ATO locks the absolute maximum value you can ever write off at $69,883.
Because of those two caps, nearly $30,000 of what you actually paid for the car is completely locked out of your taxes.
Note:
Don't confuse the Car Limit with the Luxury Car Tax (LCT) thresholds, which have higher thresholds and dictate when extra tax is added to the purchase price at the dealership.
Why is the ATO Being a Party Pooper?
Why does the ATO do this? It all comes down to their view of business expenses.
The ATO’s core rule is that business deductions are meant to cover the necessary costs of running a business. In their eyes, you need a safe, reliable vehicle to get from Point A to Point B to generate income.
However, they draw the line at luxury. The ATO views any amount you spend in excess of the car limit as a personal lifestyle choice, rather than a strict business necessity. They figure that a $70k car will get the job done just as well as a $120k car, so if you choose to splurge on leather seats, a premium badge, or a sports mode, you need to pay for that out of your own pocket.
Are There Exceptions?
Luckily, Yes!
Before you completely cross that dream car off your list, it's worth noting that the car limit only applies to vehicles defined by the ATO as cars (essentially passenger vehicles, including station wagons and utes designed primarily to carry passengers).
The limit generally does not apply if the vehicle is:
A commercial vehicle designed to carry a load of one tonne or more (like many commercial vans and heavy-duty single-cab or dual-cab work utes).
A vehicle designed to carry 9 or more passengers.
Ready to Upgrade the Company Wheels?
Upgrading your business vehicle is a fantastic milestone, but it pays to crunch the numbers before you fall in love with a car on the showroom floor. If you buy above the limit, just make sure you’re doing it because you love the car and it works for the business, not because you’re expecting a massive tax write-off.