Understanding the car tax thresholds for the 2023-24 financial year is important for business owners who use vehicles in their business.
By keeping up to date on income tax and GST requirements, you can effectively manage expenses, ensure you claim deductions accurately and make well-informed decisions regarding business vehicles.
Car definition for tax purposes
Cars (for income tax purposes) are defined as motor vehicles (including four-wheel drives) designed to carry both:
a load less than one tonne
fewer than nine passengers.
Car Thresholds
From July 1, 2023, new thresholds come into play for business motor vehicle depreciation and goods and services tax (GST).
The car limit in the 2023–24 income year is $68,108, up from $$64,741 in 2022-23.
Income year Car limit
2023–24 $68,108
2022–23 $64,741
2021–22 $60,733
2020–21 $59,136
2019–20 $57,581
Income tax and depreciation
The car limit for 2023–24 is $68,108 which represents the maximum value that can be used for calculating depreciation on the business use of a car first used or leased in the 2023–24 income year.
The maximum value for calculating a depreciation claim is the car limit, irrespective of any amount paid for a trade-in in the year in which the car was first used or leased.
As a business owner, you can claim tax deductions for expenses relating to motor vehicles used in your business, but if you use a motor vehicle for both business and private use, it is essential that you accurately identify the percentage of business use and exclude any private use when making claims.
Claiming depreciation for cars
There are different methods for claiming depreciation deductions for cars.
If you deduct car expenses using the cents per kilometre basis, you can't also claim a deduction for the car under the simplified depreciation rules (as this method already allows for depreciation).
With the cents per kilometre method, you allocate the car to the small business pool with a business use percentage of 0%, resulting in a zero deduction for depreciation.
If you change from the cents per kilometre to the logbook method, you'll need to estimate a business use percentage. If the estimated business use is more than 10%, you must use the adjustment formula to adjust the opening pool balance.
If the car is owned or leased by a company or trust that qualifies for, and has chosen to use, the simplified deduction rules, it's cost will generally be depreciated under the simplified depreciation rules. In this case, any private use by you or other employees or associates will be subject to fringe benefits tax.
Goods and services tax (GST)
If you purchase a car and the price exceeds the car limit, the maximum GST credit you can claim (except in certain circumstances) is one-eleventh of the car limit, which is $6,191 in 2023–24.
You can't claim a GST credit for any luxury car tax you pay when you purchase a luxury car, regardless of how much you use the car in carrying on your business.
Exceptions
In certain circumstances, you can claim a GST credit for the full amount of GST included in the price of a car even if the car costs more than the car limit. The car must be used in carrying on your business and at least one of the following conditions must be met:
• you hold the car solely as trading stock, other than holding the car for hire or lease
• you carry out research and development for the manufacturer of the car
• you export the car in circumstances where the export is GST-free
• it is an emergency vehicle
• it is a commercial vehicle that is not designed for the principal purpose of carrying passengers
• it is a motor home or campervan
• it is a vehicle specifically fitted out for transporting disabled people seated in wheelchairs (unless the sale of the car was GST-free).
Still a bit unsure as to how to apply the car limits? Consulting with your accountant is advisable so you can ensure compliance with regulatory requirements and you can be confident about the costs associated with business vehicles.