GST and Cars: What Business Owners Need to Know

Purchasing a car through your company can be an attractive proposition, but it’s essential to understand the GST rules and potential pitfalls, especially when it comes time to sell.

GST Cap on Car Purchases

When a business purchases a car, it can generally claim a GST credit for the GST included in the purchase price but only up to a capped amount. For the 2025–26 financial year, the car cost limit is $69,674, which means the maximum GST credit claimable is $6,334 (i.e. 1/11 of the limit). 

Even if the car costs significantly more say $200,000 the GST credit is still capped at $6,334. This rule applies regardless of whether the car is fuel-efficient or not (refer later to our section on electric vehicles). The excess GST paid beyond this cap is not refundable, creating a mismatch between the GST paid and the GST credit received.

The Sting in the Tail when Selling the Car….

When the company eventually sells the car, it must remit GST on the full sale price, not just the capped amount it originally claimed. For example, if the car is sold for $110,000, the business must pay $10,000 in GST to the ATO (1/11 of the sale price).

This creates a cash flow disadvantage as the business may have only claimed $6,334 in GST credits on purchase but must pay $10,000 in GST on sale a net loss of $3,666 in GST alone, not accounting for depreciation or other tax implications. This position gets worse the higher the value of the car.

Other Issues

There are a host of other considerations when buying a car in your company such as Fringe Benefits Tax (FBT) on private use. This is beyond this article, but we note we’ve seen an uptake in larger vehicles like Rams and other commercial style vehicles, which can potentially be exempt from FBT and the above-named GST caps, as they are designed to carry a load of > 1 tonne. We’ve also seen a huge take up of dual cab utes – but many don’t qualify as commercial vehicles for tax purposes.

Electric Vehicles

It wouldn’t be an article on cars without mentioning the lucrative concessions for electric vehicles (EVs). Regardless of your viewpoint on them, from a tax point of view we have observed many businesses buying electric vehicles (EV’s) to take advantage of the Government’s FBT exemption on EV’s (note the hybrid concessions have now ceased).

The EV measure exempts an employee and therefore the business, from paying fringe benefits tax when they buy an EV worth less than $91,387 through a novated lease, where an employer pays a car lease through pre-tax salary deductions.

Whilst FBT exempt, it is still a reportable fringe benefit on the employee’s payment summary and therefore gets factored into calculated for other areas such as private health, Medicare and childcare rebates, along with HECS/HELP, and Division 293, to name a few.

The exemption had been far more popular than Treasury forecast, with more than 100,000 drivers taking out a novated lease, compared with initial estimates of just 4,700! Clearly with the larger than expected uptake, the Government may have to review the cost to the taxpayer. It is due to be reviewed for periods after 1 July 2027.  

Key Takeaways for Business Owners

• GST credits are capped for cars, regardless of the actual GST paid.
• Full GST must be remitted on the sale price, even if the credit was capped at purchase.
• Commercial vehicles can be exempt from the GST cap. Take care when looking at buying a dual cab ute as many don’t qualify as commercial vehicles.
• Electric vehicles (EV’s) have a range of tax incentives offered at present. For other vehicles that don’t qualify, be careful of the FBT implications of holding a vehicle in a company structure.
• This article doesn’t cover off on the income tax upsides and downsides either, that’s for another article!
• Consider the long-term tax implications before purchasing a car through your business.

Understanding these rules can help avoid unexpected tax liabilities and ensure smarter financial decisions when it comes to company vehicles. Talk to us prior to committing to that next vehicle and we can walk you through the various tax implications and tips and tricks to ensure you maximise your position.