The Tax Implications of Buying or Leasing a Luxury Car
As the popularity of luxury vehicles continues to grow, it's important for business owners and professionals to understand how tax rules can affect the true cost of acquisition—particularly when a vehicle is used for business or income-generating purposes.
Depreciation and GST Limitations
Taxpayers can generally claim depreciation deductions and GST credits when purchasing vehicles used in business. However, for luxury cars, these claims are capped.
For the 2025–26 income year, the luxury car limit is $69,674. If the purchase price exceeds this amount:
GST credits are limited to 1/11th of $69,674 (i.e. $6,334)
Depreciation deductions are also capped at $69,674, regardless of the actual cost
For example, a business purchasing a car for $88,000 will only be able to claim deductions and credits up to the capped amount—significantly increasing the effective after-tax cost.
Exceptions to the Rules
The luxury car caps do not apply to:
Vehicles designed to carry more than 1 tonne, or
Vehicles designed to carry 9 or more passengers.
Certain dual cab Utes may also be exempt if they can be shown not to be primarily designed for passenger transport, based on a specific ATO formula.
Leasing Luxury Vehicles
When leasing a luxury car, the tax treatment differs from standard vehicles. The ATO treats the arrangement as if the car was purchased with borrowed funds. As a result:
Lease payments are not fully deductible
Deductions are based on depreciation (subject to the luxury car limit) and notional interest.
Luxury Car Tax (LCT)
LCT applies at 33% to the value of a car above the applicable threshold:
$91,387 for fuel-efficient vehicles
$80,567 for other vehicles
Note: From 1 July 2025, only vehicles with fuel consumption below 3.5L/100km qualify as fuel-efficient—tightening eligibility.
Buying or leasing a luxury vehicle involves more than just the purchase price—tax treatment can significantly impact your bottom line. Before committing, seek professional advice to ensure you understand the full tax implications. If you're considering acquiring a luxury vehicle for business, contact us for tailored guidance.