Changes to Car Tax Thresholds
If you’re planning to purchase a new vehicle for work or business use, it’s important to be aware of the updated tax thresholds that came into effect from 1 July 2025. Each financial year, the Australian Taxation Office (ATO) adjusts the limits on how much of a vehicle’s cost you can claim through depreciation and GST credits. These updates can affect both business owners and employees using vehicles for work purposes.
The car depreciation cost limit for the 2025–26 financial year has been set at $69,674. This figure represents the maximum value you can use when calculating tax deductions on a car that is either purchased or leased and used for business purposes. If the vehicle you purchase exceeds this value, the portion above the limit is not claimable as a tax deduction. In addition, GST credits are also capped at this threshold, meaning you cannot claim input tax credits on any amount over $69,674. The maximum GST credit available is $6,334, which is one-eleventh of the depreciation cap.
There have also been updates to the Luxury Car Tax (LCT) thresholds. For fuel-efficient vehicles, LCT will now apply to cars valued above $91,387. For all other vehicles, the threshold is $80,567. These thresholds apply regardless of whether the vehicle is being used for business or personal purposes.
These changes are particularly relevant for businesses looking to upgrade their vehicle fleets or individuals planning to purchase a car through their company. Purchasing a vehicle above these limits may result in fewer tax benefits and higher upfront costs.
If you’re unsure how these changes apply to your situation, we encourage you to seek advice before committing to a purchase. Our team can help you understand the implications and determine the most tax-effective way to structure your vehicle acquisition. Contact us on 1800 618 800 or email admin@simmonslivingstone.com.au.
