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Avoid Costly Mistakes: ATO’s 2025 Car Thresholds Unpacked

Are you planning to purchase a new business vehicle this year?

Understanding how the latest ATO car thresholds impact your deductions and GST claims is critical to making a smart move in the 2025–26 income year.

Many business owners miss out on valuable tax opportunities simply because they don’t keep up with annual updates. The good news? With the right guidance, you can make confident decisions that keep your business moving forward—literally.

What’s Changing from 1 July 2025?

The Australian Taxation Office has announced new thresholds for the 2025–26 financial year. If you’re thinking about buying a vehicle for your business, here’s what you need to know.

1. Car Depreciation and GST Credit Limits

    • New car limit: $69,674
       This is the maximum amount you can use to calculate depreciation on a vehicle used for business or income-generating purposes.

    • Maximum GST claim: $6,334
       Even if your car costs more, this is the highest GST credit you can claim (1/11 of the car limit), unless a specific exemption applies.

2. Updated Luxury Car Tax (LCT) Thresholds

The LCT kicks in when the value of the car exceeds the following thresholds:

    • Fuel-efficient vehicles: $91,387

    • Other vehicles: $80,567

3. New Definition for Fuel-Efficient Vehicles

From 1 July 2025, a car will only qualify for the higher LCT threshold if it has a fuel consumption of no more than 3.5 litres per 100 km. Previously, this limit was 7 litres per 100 km.

The ATO has also aligned the indexation rates for both LCT thresholds to ensure consistency year to year.

How This Affects Business Owners

Whether you’re upgrading your fleet or buying your first company vehicle, these changes can influence your purchasing decision and your year-end deductions.

Key Considerations:

    • Budget wisely: If your vehicle exceeds the car limit, you won’t be able to depreciate the full cost or claim GST beyond the capped amount.

    • Go fuel-efficient strategically: Choosing a qualifying fuel-efficient model may help you avoid paying LCT altogether.

    • Timing matters: Your car must be first used or leased in the 2025–26 income year to apply these new thresholds.

Real-World Insight: Getting It Right from Day One

Let’s say a business owner purchases a sedan for $75,000 in July 2025 to be used 100% for business purposes. While they can claim the $6,334 GST credit, they cannot depreciate the full cost of the vehicle. The depreciation is capped at $69,674, even though they paid more.

Now, imagine if they opted for a fuel-efficient vehicle priced at $90,000 that meets the 3.5L/100km requirement. Not only do they stay under the LCT threshold, but they also maximise their deductions within the allowed limits—smart strategy, better results.

Why Expert Guidance Matters

Tax law moves fast. One misstep—such as incorrectly calculating depreciation or claiming GST on a vehicle that exceeds limits—can result in costly penalties or missed deductions.

At Aero Accounting Group, we make it easy for business owners to stay compliant, maximise opportunities, and operate with clarity. Whether you’re planning a major purchase or reviewing your current vehicle claims, our team provides tailored, proactive advice to keep your business on track.

Drive Smarter Decisions with Aero Accounting Group

Thinking of buying a vehicle in the new financial year? Make your purchase work harder for your business. Book a consultation with Aero Accounting Group to:

✅ Understand how the latest ATO car thresholds apply to your situation
✅ Maximise your depreciation and GST claims legally and effectively
✅ Receive expert advice before you buy

Don’t navigate these changes alone. Partner with Aero Accounting Group—your trusted advisor in business success.

📞 Ready to make your next business move with confidence? Book a strategy session today or contact our team for expert support.

Need help?

Not sure if your current accountant is a good long-term fit? Contact us at Aero Accounting Group today and we’ll help you minimise your taxes and maximise your profits

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