The car limit: which vehicles it caps and by how much

What is the car limit?

The car limit is a cap the ATO places on how much of a passenger car’s cost a business can use for tax purposes. It does two jobs:

1. Depreciation. It’s the maximum cost you can use to calculate the car’s decline in value. Any amount above it can’t be claimed under any depreciation rules.
2. GST. It caps the GST credit you can claim when you buy the car at one-eleventh of the limit.

The limit is indexed and published by the ATO each financial year.

The figures

Financial year	Car limit	Maximum GST credit (1/11)
2025–26	$69,674	$6,334
2026–27	$69,883	$6,353

Source: ATO. We update these figures when the ATO publishes new ones.

Which vehicles does it apply to?

The ATO says the car limit does apply to passenger vehicles (other than motorcycles or similar vehicles) designed to carry:

• a load of less than one tonne, and
• fewer than nine passengers.

It doesn’t apply to:

• vehicles that aren’t passenger vehicles under that definition;
• vehicles modified for use by people with a disability.

So which work vehicles are caught?

Vehicle	Usually
Sedan, hatch, wagon, most SUVs	Caught — passenger vehicle
People mover with eight or fewer passenger seats	Caught
Minibus or bus for nine or more passengers	Not caught
Panel van designed for goods	Often not caught — check payload and design
Single-cab ute with one-tonne-plus payload	Often not caught
Dual-cab ute	Depends on design and payload — check the model
Light and heavy trucks	Not caught

The dual-cab ute row is the one that trips people up. Some are designed to carry a tonne or more and sit outside the car limit; others don’t. Your accountant can confirm the treatment of a specific model.

A worked illustration

Illustrative only. A GST-registered company buys a sedan for business use in 2026–27 for a GST-inclusive price above the car limit.

• GST credit: capped at $6,353, reduced further for any private use.
• Depreciation: worked out on a maximum cost of $69,883 (adjusted for business use), not the full price.
• The excess: the cost above the car limit isn’t depreciable under any rule.

If the same company bought a one-tonne-payload single-cab ute for the same price, the car limit wouldn’t apply, so neither the GST credit nor the depreciable cost would be capped in this way.

Car limit, LCT and FBT: three different things

It’s easy to blur these together:

• Car limit — caps depreciation and GST credits for the buyer.
• Luxury car tax — a separate tax built into the price of cars above the LCT threshold.
• Fringe benefits tax — payable by employers on private use of cars by employees.

A prestige car might be affected by all three; a work ute may be affected by none.

Leasing and the car limit

For GST, the ATO says the credit on lease payments is not limited to one-eleventh of the car limit. For income tax, leased luxury cars have their own rules. If you’re comparing buying and leasing an expensive car, ask your accountant to model both.

How the car limit affects your choice of vehicle

If you’re choosing between a passenger car priced above the car limit and one priced below it, the after-tax gap is bigger than the sticker prices suggest. If the work is mainly carrying tools and materials, a goods vehicle such as a ute or van may be more practical and may sit outside the cap. See business car finance and ute finance. Lower-cost assets may also qualify for the instant asset write-off.

Planning a purchase around the car limit

If you’re buying a passenger car for the business, the car limit is a useful price marker. A few practical points:

• Know which year applies. The car limit generally depends on the financial year in which you first use or lease the car. A car delivered on 2 July may fall under a different limit from one delivered on 28 June. Confirm with your accountant.
• Compare after-tax costs, not sticker prices. Two cars might look close in price, but if one is well above the car limit, part of its cost and GST won’t be claimable.
• Factor in luxury car tax. Above the LCT threshold, LCT is built into the price, so a car well above the car limit may also be carrying extra tax in its price.
• Consider private use. Business-use percentages reduce the claimable amounts further.

The car limit and finance

The car limit has nothing to do with how much you can borrow. Lenders assess the vehicle’s full price against your business’s capacity to repay. A business can finance a car priced above the car limit; it just can’t claim the excess for depreciation or GST. If you’re stretching to afford a car above the limit, it’s worth asking whether a model below it would do the same job.

Record-keeping tips

Keep the tax invoice, a record of the date the car was first used, and your logbook. Those three documents answer most of the questions your accountant — or the ATO — might ask about a car’s tax treatment.

Ready to finance a car or ute?

The car limit doesn’t stop you financing a vehicle; it just shapes the tax result. The business vehicle finance planner flags the car limit for passenger vehicles in your results. For a direct answer, start your enquiry.

There’s no credit check to enquire, and we don’t share your details with a parade of lenders. One specialist reads your enquiry and phones you to talk through the vehicle and the structure. Accurate information about the vehicle type and price helps us — and your accountant — get the numbers right. Check your options.