Company Car Tax Benefits 

As a business, you can claim tax deductions on cars you acquire for your company, whether you’re buying or leasing. Company car tax benefits include depreciation, deductions, capital gains, and fringe benefits tax. 

In this article, we specify what you can claim as a company car benefit and what circumstances make one eligible.

Tax benefits of buying a car for business

You can claim company car tax benefits when buying a vehicle for business purposes. Those include: 

Vehicle write-off 

When buying your business-owned vehicle, you can claim a percentage of its total purchase cost, known as the car limit. 

The ATO car limit only lets you claim up to $68,108 for the 2023/24 financial year. You can only apply the car limit on your vehicle write-off after you account for your business usage.

Read our article on writing off a car for business in Australia for more insights. 

Calculating the business percentage of your driving

To calculate your car’s business usage, make sure you keep an ATO-compliant logbook to track your average business miles. You can also automate the process by using a mileage tracking app.Then, devise a percentage of your business usage and apply it to your vehicle write-off amount. 

Example: If you use your vehicle for business 80% of the time and the cost of the vehicle is $50,000, you could write off $40,000 of the total cost. 

Tax deductions 

As well as writing off a percentage of your vehicle costs, you can claim tax deductions on other associated costs, including:

• Fuel
• Repairs and servicing
• Insurance cover
• Registration
• Depreciation (decline in value)

Here’s how to claim each of the costs above and what company car tax benefits you can expect when buying a vehicle.

Fuel

With the cents per kilometre method, you can claim up to 5,000 business miles per business-owned vehicle per year. However, if you use this, you won’t be able to claim for anything other than fuel costs. The cents per kilometre method is designed to simplify calculating your car tax deductions by incorporating all your car expenses into a single rate per kilometre. 

The ATO’s rate is 85 cents per kilometre, and covers all your car-related costs, including fuel.

You don’t need evidence, but you must be able to show how you worked out your kilometres, including accurate mileage log records. 

If your business miles are over 5,000 per year, use the logbook method to calculate your deductions. This allows you to claim deductions on the business-use percentage of each car expense. 

You can further compare the logbook vs centre per kilometre methods here. 

Repairs and servicing

Company car tax benefits include deductions for vehicle repairs and services. Calculate what you can claim by working out the percentage you use your car for business purposes. 

Example: If you use your vehicle for business 80% of the time, you can only claim up to 80% of the cost of your car repair. To do this, you must present evidence, including receipts or invoices. 

Make sure to obtain:

• The date and cost of repair 
• Details of the repair 
• The mechanic or garage’s information

There’s currently no limit on deductible repair costs. 

Insurance cover 

You can claim deductions on your business vehicle insurance through the ATO, but only a percentage of expenses directly related to your business usage. 

Registration

Registration costs include:

• A registration fee
• Vehicle tax
• Inspection
• Number plate fee

When you register a vehicle for business purposes, you will incur a higher tax. Luckily, you can claim all registration costs associated with your business vehicle (within the business driving percentage). If your car is 100% used by your business, you can claim back all registration costs with the ATO. 

Depreciation

Newly purchased vehicles will depreciate in value rapidly as mileage and age increase. The ATO allows you to claim for the depreciation of your business-owned vehicle. To do this, you need to record the purchase price of the car and calculate the number of years it will be useful, as well as its expected value at the end of its effective life.
After determining these values, you can calculate the vehicle depreciation rate using either the diminishing value method or the straight-line method. 

Fringe benefits tax 

The fringe benefits tax (FBT) is imposed on employers for any benefits they give to employees, including company cars. This tax is calculated based on the taxable value of the car benefit, determined using the statutory formula or operating cost method. 

While you cannot claim the full fringe benefits tax amount, you can deduct expenses like fuel, repairs, insurance, and registration to reduce the taxable value of the car benefit. 

You can find the full guide to car FBT in Australia here. 

Capital gains concessions

Businesses can disregard capital gains tax if the vehicle is solely used for business.

If the car is partially used for personal use, you need to determine the percentage used for the business and calculate the assessable portion of the balancing adjustment income. 

Balance adjustment income occurs when the sale proceeds of a depreciating asset (like a car) exceed its adjustable value, i.e., the remaining depreciable value. 

To calculate this, simply subtract the adjustable value of the car from the sale proceeds.

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Tax benefits of leasing a car for business

You can still claim company car tax benefits if you decide to lease rather than buy a vehicle for business purposes. You may be able to deduct loan interest rates on your car loan and lease payments. 

Loan interest rates

If you take out a loan on a vehicle for business purposes, you can claim deductions on the interest as it’s a business expense. 

Claiming deductions for loan interest rates involves maintaining accurate records of all the interest payments you make throughout the year and the initial loan contract. 

If your vehicle is solely used for business, you can claim the full loan interest amount. If the car is partially used for personal use, you can only deduct the business usage percentage.

Lease payments

Like loan interest rates, lease payments are also deductible as operating expenses. However, only the portion of the lease payment attributable to the vehicle's business usage percentage can be claimed. 

Buying a vehicle as an individual vs as a business

That depends on whether you’ll be using it solely for business or a mix of personal and business use. 

Buying through your business will allow you to claim tax deductions on the cost of your car, maintenance, insurance, fuel, and road tax, which we’ve highlighted in this article. You can also claim a portion of its depreciation value. Buying through your business may also lead to more favourable car loan terms compared to purchasing as an individual. 

However, there are drawbacks to buying a car through your business. 

It means that you are tied to the vehicle for several years, and you may be stuck with a depreciating asset that is no longer suitable for your business needs. 

If you’d like to use your car equally for personal and business use, buying through your business will restrict what tax benefits you can claim. Using your business vehicle for personal use 50% of the time will only allow you to claim up to 50% of your car’s tax deductions. 

Weigh up the benefits of company car tax benefits with your planned usage of the vehicle to decide whether buying the car as a business or an individual is best for your needs.