Tax and deductions

Buying a car for your business as a sole trader: tax, GST and finance

A vehicle is usually the biggest purchase a sole trader makes, and the tax treatment depends on questions that are easy to answer before you buy and awkward after: is it a car or a load-carrying vehicle, is it over the car limit, who are you buying from, and how is it financed. This guide takes them in order.

Updated 16 September 2026. General information only, not tax advice.

Is it a car?

The ATO defines a car as a motor vehicle designed to carry a load of less than one tonne and fewer than nine passengers. Sedans, SUVs, dual-cab utes with a payload under one tonne, and small vans are cars. Single-cab utes, cab-chassis vehicles and vans with a payload of one tonne or more are not.

It matters because cars are subject to the car limit and to the two methods for claiming car expenses. Non-car vehicles are claimed on actual costs at the business percentage with no cap. A ute’s payload is on its compliance plate; check it before assuming.

The car limit

For a car, the amount you can depreciate is capped at the car limit for the year of purchase: $69,674 for 2025-26, set annually, so confirm it on the ATO site. If you buy a $90,000 car, depreciation is calculated on $69,674 at your business percentage, and the rest is never deductible.

The GST credit is capped the same way: one eleventh of the car limit, at the business percentage, even if the car cost more. Luxury car tax applies above a separate, higher threshold and is not claimable at all. Utes and vans over one tonne have no car limit, which is one reason tradies favour them.

Instant asset write-off or depreciation

If the vehicle costs less than the instant asset write-off threshold ($20,000 per asset in recent years; check the current year), you can deduct the business share of the whole cost in the year you start using it. Most vehicles cost more, in which case they are depreciated: either in the small business pool (15% first year, 30% thereafter) or over the vehicle’s effective life. The business percentage from your logbook applies to whichever method you use. If you claim cents per kilometre instead, depreciation is already built into the rate and cannot be claimed separately.

GST on the purchase

You can claim the GST on the purchase price (capped by the car limit for cars) at your business percentage, on the BAS for the quarter you buy it, if you are registered and the seller gave you a tax invoice. That means buying from a dealer or a GST-registered business. A private seller does not charge GST, so there is nothing to claim on a private sale, although the price is often lower to compensate. On the full BAS form the purchase goes at G10; on the simpler BAS only the credit at 1B matters. A car bought for $55,000 at 80% business use gives a $4,000 credit.

How to finance it

Cash. Simplest. Claim depreciation and GST as above.
Chattel mortgage or car loan. You own the car from day one. Claim depreciation on the cost, the GST up front on the full price, and the interest on the loan at the business percentage. Principal repayments are not deductible.
Lease. The financier owns the car and you claim the lease payments at the business percentage, with the GST on each payment as you go. No depreciation, because you do not own it. At the end you may buy it for the residual.
Hire purchase. Treated much like a chattel mortgage for tax and GST.

Novated leases are an employee arrangement and do not apply to a sole trader’s own business use. Talk to your accountant about which structure suits your cash flow; the total tax outcome over the life of the car is often similar.

Trading in or selling the old one

When a business vehicle is sold or traded in, the difference between what you get for it and its written-down value is extra income or an extra deduction, at the business percentage. If you are registered for GST, the trade-in is a sale by your business and GST is payable on the business share of its value. Keep the contract.

Before you sign

Check the payload if it is a ute, to know whether the car limit applies.
Confirm the seller is GST-registered and will issue a tax invoice.
Decide the finance structure with your accountant, not the dealer.
Start a logbook in the first weeks of ownership so the business percentage is established early.
Keep the contract, tax invoice, finance documents and the trade-in paperwork together.

FlowFi picks up the purchase, the loan repayments and the running costs from your bank statement, flags the vehicle as an asset for your accountant, and applies your business percentage to the running costs and their GST each quarter.

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Frequently asked questions

Can I write off a $25,000 ute in full this year?

Only if the instant asset write-off threshold for the year is above $25,000, which it has not been in recent years. At a $20,000 threshold the ute is depreciated instead. Check the ATO for the current figure before you buy.

Is an electric car treated differently?

For a sole trader the same car limit, depreciation and GST rules apply. The fringe benefits tax exemption for electric cars is an employer measure and does not affect your own business use. The ATO offers a per-kilometre shortcut for home charging costs under the logbook method.

What if I use the car 100% for business?

Then the full cost and running costs are claimable, subject to the car limit, and you still need a logbook to show the 100%. A single car that is your only vehicle is rarely accepted as 100% business.

General information only, not tax advice. Check your own situation with a registered tax agent or the ATO.