When purchasing a car that exceeds the car limit, special rules apply regarding depreciation and tax deductions. The car limit sets the maximum amount that can be depreciated for tax purposes, and any purchase price above this limit has specific rules governing its treatment.
For the 2024–25 financial year, the car limit is set at $69,674. If the purchase price exceeds this limit, you can only depreciate the $69,674 figure over the vehicle’s useful life, usually at a depreciation rate of 22.5%. This means that only the portion of the price up to the car limit can be considered for tax deductions based on the depreciation rate.
Additionally, the maximum GST credit claim is one-eleventh of the car limit. For 2024–25, this amounts to $6,334 (1/11 × $69,674). This rule also applies to fuel-efficient cars, and only the amount up to the car limit should be included in label G10 for business use. If you are using the accounts method, include one-eleventh of the car limit under label 1B for GST on purchases. Alternatively, you can use the calculation sheet method for the appropriate GST inclusion.
In certain cases, you may be able to claim the full GST credit on a car, even if its price exceeds the car limit. The car must be used in your business, and one of the following conditions must apply:
- It is held solely as trading stock (not for hire or lease).
- You conduct research and development for the car manufacturer.
- You export the car in GST-free circumstances.
- It is an emergency vehicle.
- It is a commercial vehicle not intended for passenger transport.
- It is a motorhome or campervan.
- It is designed for transporting disabled people in wheelchairs (unless GST-free).
Understanding these rules can help you maximize your tax benefits when purchasing a car that exceeds the car limit. For more information https://www.ato.gov.au/businesses-and-organisations/gst-excise-and-indirect-taxes/gst/in-detail/your-industry/motor-vehicle-and-transport/gst-and-motor-vehicles/purchasing-a-motor-vehicle
