If you’re considering purchasing a vehicle for your business, it’s important to be aware of the updated car thresholds taking effect from 1 July 2025.
Each financial year, the Australian Taxation Office (ATO) reviews and adjusts these thresholds to reflect inflation and economic conditions, and they directly impact how much you can claim for your vehicle purchase.
Key Takeaways
- From 1 July 2025, the car depreciation limit for business vehicle claims increases to $69,674.
- Any portion of a vehicle’s cost above the car limit cannot be claimed for tax depreciation.
- Luxury Car Tax thresholds will rise to $91,387 for fuel‑efficient vehicles and $80,567 for other vehicles.
- These thresholds affect how much tax you pay or can claim when purchasing business vehicles and planning purchases around the financial year.
- Commercial vehicles may be treated differently depending on their design and business use.
- Talking with a tax accountant can help determine eligibility, fringe benefits tax implications, and record‑keeping needs for vehicle claims.
Here’s a breakdown of the new thresholds and what they mean for your business.
1) Car Depreciation Limit
From 1 July 2025, the car limit for depreciation will increase to $69,674. This is the maximum value that can be used to calculate the decline in value (depreciation) for eligible motor vehicles used in business.
If you purchase a passenger vehicle for your business that costs more than this amount, you can only claim depreciation up to $69,674. Any portion of the cost above this limit isn’t deductible for tax purposes.
This limit applies to most standard passenger vehicles designed to carry less than one tonne and fewer than nine passengers. It includes sedans, hatchbacks, and SUVs that meet these criteria.
2) Luxury Car Tax (LCT) Thresholds
The Luxury Car Tax (LCT) thresholds are also changing:
- Fuel-efficient vehicles: The threshold rises to $91,387
- Other vehicles: The threshold rises to $80,567
LCT applies to the GST-inclusive value of a car above these thresholds. Fuel-efficient vehicles (those that consume no more than 7 litres per 100km combined) attract a higher threshold, providing a little extra room before the tax kicks in.
3) Planning Ahead
If you’re planning to buy a car for your business, it’s wise to consider how these changes may affect your budget and tax position. For example, purchasing a vehicle just before or after 1 July could alter the amount you can claim.
Also, bear in mind that commercial vehicles such as utes or vans designed to carry heavier loads may fall outside of these car limit rules, depending on their specifications and how they’re used.
What You Should Do Next
Before you make any vehicle purchases, it’s a good idea to speak with your tax accountant or adviser. We can help you:
- Determine whether the vehicle you’re looking at is eligible for a deduction
- Understand the fringe benefits tax (FBT) implications if there’s any personal use
- Ensure your records are in order for a smooth claim come tax time
With these new thresholds in mind, a little planning can go a long way in making sure your next vehicle purchase is both practical and tax-smart.
If you’d like to discuss how this change may impact your business or explore other tax-effective strategies, get in touch, as we’re here to help.
If you’re ready to partner with us, or would like to know more about our accounting services, contact the team at TW Accounting today.
