Calculate Your Car Depreciation Limit
Fast. Simple.
When you buy a car, its value drops the moment you drive it off the lot. Our Car Depreciation Limit Calculator – Australia helps you estimate your car’s worth over time, using ATO-approved methods. Stay informed and plan smarter.
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Losing value?
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Hold Steady.
Depreciation Down.
Powered by smart choices, keeping your mileage low, staying on top of servicing, and knowing when to sell all help your car hold its value. Small steps today can make a big difference tomorrow.
Understand the car limit
The ATO sets a maximum cost you can claim depreciation on for cars. Even if you spend more, deductions are capped at this limit.
Factor in GST credits
If you’re registered for GST, input-tax credits may reduce your depreciable cost base but they’re capped at 1/11th of the car limit or purchase price, whichever is lower.
Watch the purchase date
If you bought your car part-way through a financial year, your first-year depreciation claim is reduced to match the days you owned it.
Choose the right method
Diminishing Value gives higher deductions upfront, while Prime Cost spreads them evenly. Picking the right method can affect cash flow.
Know the LCT threshold
Luxury Car Tax applies if your car’s value exceeds the threshold. Fuel-efficient cars enjoy a higher limit before LCT kicks in.
Check ATO updates
Car limits, LCT thresholds, and rates change every financial year. Always confirm the latest figures before lodging your claim.
Prestige or tax limits.
The choice shows.
Luxury cars hit the cap sooner.
No matter the spend, the cap holds.
High-end cars often exceed the ATO car limit. Even if you spend $120k, depreciation deductions are capped at around $69k (2025–26). The rest is not claimable, and Luxury Car Tax may apply.
Only
$69k claimable.
No matter the price.
ATO limit applies from Day 1
Any purchase price above the cap is ignored for depreciation purposes.
Economy cars stay within the cap
Most standard vehicles sit under the ATO car limit, that means the full cost can be depreciated (subject to GST credits and normal rules). This makes them simpler for tax planning and avoids LCT altogether.
Stable
100% claimable.
within the limit.
Business ready. Depreciation done.
Consistency or acceleration. Your strategy decides.
Even and steady.
Prime Cost keeps it simple — you claim the same deduction each year across the car's effective life. Predictable, balanced, and easy to plan around.
Front-loaded. Faster early.
Diminishing value is different — it gives you bigger deduction in the first few years, then gradually eases off. Ideal if you want to recover more upfront, while the car is at its highest value.
Both methods are ATO-approved. Choose steady or front-loaded.
A closer look.
$55,000 purchase
100% business use · 8-year life
Prime cost
Diminishing value
in year one
$5,500
deductible (before caps)
in year one
$13,750
deductible (before caps)
in year five
$5,500
each year, steady and predictable
in year eight
$5,500
each year, steady and predictable
in year five
$4,350
deductible (before caps)
in year eight
$1,835
deductible (before caps)
later years
Phasing down
gradually less each year as the value declines
Notes: Figures are indicative ranges from typical market behaviour in Australia. Actual depreciation varies by make, model, km, condition, and demand.
FAQs,
answered.
-
What does car depreciation really mean?
Car depreciation is the natural drop in your car’s value over time. The moment it leaves the showroom, its worth starts to fall — whether it’s for personal use or a business vehicle.
-
How does the ATO define a “car”?
For depreciation purposes, the ATO defines a car as a motor vehicle (excluding motorcycles and similar) that is designed to carry:
-
less than 1 tonne, and
-
fewer than 9 passengers.
Vehicles outside this definition (like vans or larger utes) may be treated differently.
-
Why does the ATO care about business car depreciation?
For business owners, car depreciation isn’t just numbers — it’s a tax deduction tool. The ATO lets you claim part of your car’s decline in value as a business expense, lowering your taxable income.
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What’s the difference between prime cost and diminishing value methods?
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Prime cost method → spreads the depreciation evenly each year (steady, predictable).
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Diminishing value method → front-loads the deduction, giving you bigger claims early, then tapering off.
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Which method is better for my business car?
If you prefer consistent deductions, prime cost works best. If you want faster write-offs upfront, diminishing value is your friend. The ATO lets you choose.
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Can I claim car depreciation if I use the car for both work and personal trips?
Yes — but only the business-use percentage is deductible. For example, if your car is 70% business and 30% personal, only 70% of the depreciation counts for tax.
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How do I calculate my business car depreciation?
Start with the purchase cost of your car (up to the ATO’s car limit), then apply either the prime cost or diminishing value method. Tools, calculators, or your accountant can crunch the exact numbers.
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Does depreciation affect the resale value of my car?
Absolutely. Cars with higher depreciation rates will be worth less when you sell. Smart buyers often look at brands and models with slower depreciation to get better long-term value.
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Can I write off the full cost of my car in one year?
Not always. The ATO has limits on instant asset write-offs and depreciation caps. Unless your business qualifies under special rules, most cars must depreciate over their effective life — typically 8 years.
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What’s the smartest way to manage car depreciation for tax purposes?
Plan ahead. Choose the right method (prime cost vs diminishing value), keep accurate business-use records, and talk to your accountant about ATO rules. Done right, business car depreciation can save you thousands.
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