If you're planning to purchase or lease a vehicle for your business this financial year, the price you pay isn't necessarily the amount you can use when calculating tax deductions.

New car thresholds apply for the 2026–27 financial year, affecting depreciation deductions, GST credits and the point at which Luxury Car Tax may apply.

Understanding these limits before choosing a vehicle can give you a clearer picture of its overall cost to your business.

The car limit affects depreciation deductions

For cars first used or leased during the 2026–27 income year, the car limit is $69,883.

This generally represents the maximum value that can be used to calculate depreciation deductions for a passenger vehicle subject to the car limit.

For example, buying an eligible passenger vehicle for $90,000 doesn't generally mean the business can calculate depreciation using the full $90,000 purchase price. The applicable car limit needs to be considered.

This doesn't necessarily mean a vehicle above the limit is the wrong choice. Operational requirements, safety, reliability and other business considerations may justify a higher purchase price.

It does mean the tax treatment should be understood before assuming a more expensive vehicle will produce a proportionately larger depreciation deduction.

Business and private use need to be separated

Many business vehicles are also used privately.

Where a vehicle has both business and private use, deductions generally need to reflect the eligible business-use portion.

Appropriate records are important. Depending on the method being used, these can include a logbook, odometer readings and evidence of vehicle expenses.

The records required and the way deductions are calculated can differ depending on your circumstances and business structure.

Your Modoras accountant can help determine the treatment that applies to your vehicle and business use.

GST credits are also subject to a limit

Businesses registered for GST may be able to claim GST credits when purchasing a vehicle for business use.

However, where an eligible car costs more than the car limit, the GST credit is generally also capped.

For 2026–27, the maximum GST credit for an affected passenger vehicle is $6,353, which is one-eleventh of the $69,883 car limit.

This means buying a significantly more expensive passenger vehicle doesn't necessarily produce a larger GST credit.

There are exceptions to the general car-limit rules for some vehicles, so the characteristics and intended use of the vehicle should be considered before applying the cap.

Luxury Car Tax may add to the purchase cost

Luxury Car Tax (LCT) can apply where the value of an eligible vehicle exceeds the relevant threshold.

For the 2026–27 financial year, the thresholds are:

• $91,661 for fuel-efficient vehicles; and
• $80,809 for other vehicles.

LCT is generally calculated at 33% of the value above the relevant threshold, rather than 33% of the vehicle's entire value.

Not every vehicle above these prices will necessarily be subject to LCT. The tax rules contain exemptions and specific definitions, so the vehicle's characteristics and transaction need to be considered.

What about the cents per kilometre rate?

Another motor vehicle tax change took effect from 1 July 2026.

The cents per kilometre rate for eligible taxpayers using that method increased to 91 cents per kilometre for 2026–27.

The method is subject to its own eligibility and record-keeping requirements, so it should not be confused with the car depreciation limit that applies when calculating deductions for eligible vehicle costs.

Look at the cost beyond the drive-away price

A vehicle can be an important business purchase, but the advertised price only tells part of the story.

Depreciation, GST, Luxury Car Tax, finance costs, running costs and the proportion of business use can all affect the financial outcome.

If finance is required, the way a vehicle is funded can also affect business cash flow. Modoras clients can learn more about lending and finance solutions when considering how a significant purchase fits within their broader financial position.

Working through these factors before signing a purchase or finance agreement can help you understand the after-tax cost rather than making a decision based solely on the purchase price.