Car Depreciation Limit in Australia 2025: What You Need to Know
- Automotive Globe Specialist
- 7 days ago
- 5 min read
For Australian business owners, sole traders, and self-employed individuals, knowing the car depreciation limit in Australia 2025 is critical for tax planning and maximising deductions. The ATO sets an annual cap on the value of passenger vehicles used for business purposes when computing depreciation—ensuring fair tax treatment while controlling excessive claims.
In this blog, we'll explore the key aspects of the car depreciation limit in Australia 2025, compare it with prior years, and examine how depreciation differs across ICE (internal combustion engine), hybrid, and electric vehicles. We’ll also break down how to apply this cap in practical scenarios, including implications for GST, luxury car tax, instant write-off options, and usage methods. A comprehensive FAQ rounds off the article to address common queries.
What Is the Car Depreciation Limit in Australia 2025?
For the 2025–26 financial year, the Australian Taxation Office confirms that the car depreciation limit remains at $69,674.
This means:
When a passenger vehicle is first used or leased for business during the 2025–26 income year, depreciation deductions are capped at $69,674, regardless of the actual purchase price.
This is unchanged from the 2024–25 limit, which was also $69,674. Historical data reveal earlier figures:
2023–24: $68,108
2022–23: $64,741
2021–22: $60,733
Why Has the Limit Remained Unchanged?
The car depreciation limit is indexed annually based on inflation, using the motor vehicle purchase sub-group of the Consumer Price Index (CPI). The fact that the limit held steady between 2024–25 and 2025–26 suggests minimal adjustment was needed or rounded at the same rate.
Which Vehicles Are Subject to the Depreciation Limit?
Passenger Vehicles
The car depreciation limit in Australia 2025 applies strictly to passenger vehicles—those designed to carry fewer than nine passengers and under one ton in payload.
Exemptions: Commercial Vehicles and Load-Focused Utility Vehicle
Vehicles designed primarily for carrying loads—such as utility vehicles, vans, or trucks—may be exempt if they meet a load-carrying capacity test:
If a dual-cab utility has a payload capacity above 1 ton, it typically falls outside the limit.
Even if it is under 1 ton, if the vehicle’s primary purpose is loading transport rather than passenger use, it may also be exempt.
For example, a Toyota Hilux single cab with 1,200 kg payload generally qualifies for exemption.
How to Apply the Depreciation Limit to ICE, Hybrid, and Electric Vehicles
ICE Vehicles (Internal Combustion Engine)
Most ICE passenger vehicles intended for business use must adhere to the depreciation cap if they exceed $69,674. You can claim depreciation only up to this limit, even if the purchase price is higher.
Hybrid Vehicles
Hybrids are treated like ICE vehicles and subject to the same $69,674 cap, provided they qualify as passenger vehicles. The type of fuel system doesn't alter the application of the limit, but incentives or subsidies (e.g., for fuel efficiency) may affect net cost calculations.
Electric Vehicles (EVs)
Pure electric vehicles also fall under the car depreciation limit in
Australia 2025. Any EV costing more than $69,674 can't be fully depreciated for tax purposes. However, the presence of government incentives—like fringe benefits tax exemptions or stamp-duty reductions in some states—can improve the effective tax treatment of EVs, though they don’t change the depreciation cap itself.
How Car Depreciation Affects Resale Value and Tax Planning
The car depreciation limit doesn’t just affect your tax bill—it also impacts:
Resale strategy: If your car is heavily depreciated in accounting but still has market value, capital gains may apply on sale.
Loan decisions: Depreciation affects how much your vehicle is worth relative to your loan—important for avoiding negative equity.
Fleet planning: Businesses planning multiple vehicle purchases should factor depreciation in long-term operating costs.
Depreciation Methods: Logbook vs Cents-per-Kilometre Logbook Method
Logbook Method
The Logbook Method - is generally the more accurate way to claim depreciation because it reflects the actual business use of your car. To use this method, you need to:
Keep a 12-week logbook (valid for five years) that records every trip—whether for business or private use.
Calculate the percentage of business use based on your logbook records.
Apply that business-use percentage to your car expenses, including fuel, insurance, registration, maintenance, and depreciation up to the car limit ($69,674 in 2025/26).
For example, if your logbook shows that 60% of your driving is for business, you can claim 60% of the depreciation value of the car (but only up to the ATO’s car depreciation limit). This method requires more record-keeping, but it often results in higher deductions if your business use is significant.
Cents-per-Kilometer Method
The Cents-per-Kilometre Method is simpler, but more limited. Instead of tracking every expense, you just:
Multiply the number of business kilometres you drove by the set ATO rate (88 cents per kilometre for the 2025/26 financial year).
You can only claim up to 5,000 km per year using this method.
This rate already bundles in fuel, maintenance, and depreciation, which means you don’t have to calculate depreciation separately. Simplicity makes it attractive for sole traders or employees with minimal record-keeping needs, but the cap at 5,000 km means it may not capture the full costs if you use your car heavily for business.
Choosing the Right Method
· Use the Logbook Method if your business kilometres are high and you’re willing to maintain detailed records.
· Use the Cents-per-Kilometre Method if your business drive is light, or you prefer a quick, hassle-free approach without detailed documentation.
Both methods are recognized by the ATO, but the Logbook Method tends to maximize claims, especially for higher-value vehicles or those used extensively for business purposes.
Comparing 2025 vs Previous Years: Depreciation Limits by Year
Financial Year | Car Depreciation Limit |
2025–26 | $69,674 |
2024–25 | $69,674 |
2023–24 | $68,108 |
2022–23 | $64,741 |
2021–22 | $60,733 |
The modest rise from 2023–24 to 2024–25 was driven by inflation adjustments, while 2025–26 capped at the same level as the prior year.
Practical Examples
Example 1: ICE Vehicle
A business buys a car for $80,000.
Depreciation claim is capped at $69,674.
GST credit claim: $6,334.
If business use is 80%: depreciation applies to 80% of $69,674 = $55,739.
Example 2: EV Purchase
An electric vehicle is purchased for $100,000.
Depreciation capped at $69,674.
GST credit limited to $6,334.
Any fringe benefits tax or EV incentives must be calculated separately.
Example 3: Ute (Load Vehicle)
A payload-focused utility vehicle with a 1,200 kg capacity is bought for $90,000.
It qualifies as a commercial vehicle under the load-based exemption.
Full cost may be depreciated—no $69,674 cap applies.
Summary: Key Takeaways
The car depreciation limit in Australia 2025 remains $69,674, unchanged from 2024–25.
Only passenger vehicles under specific weight and load criteria are capped; heavy load-focused utility vehicle and trucks are often exempt.
The cap applies equally across ICE, hybrid, and EVs; only investment incentives vary by vehicle type.
GST credits, depreciation methods, and write-off provisions must align with the cap.
Choosing between depreciation methods depends on business structure and usage.
Frequently Asked Questions (FAQ)
1. What is the car depreciation limit in Australia in 2025?
The limit is $69,674, applying to passenger vehicles used for business purposes in the 2025–26 financial year.
2. Does this limit apply to electric vehicles (EVs)?
Yes, EVs are subject to the same depreciation cap if they qualify as passenger vehicles. Government incentives may affect their cost but not the depreciation cap.
3. Are utility and commercial vehicles exempt from the cap?
Possibly. If a vehicle’s payload capacity exceeds one ton or it’s primarily designed for load—like some utility, it may be exempt from the limit.
4. Does car depreciation limit include GST?
Yes, the car limit includes GST and LCT. But if you’re registered for GST and can claim input tax credits, you apply the limit to the GST-exclusive cost.
5. How do I avoid hitting the depreciation limit?
Choose a vehicle below the threshold or opt for a commercial vehicle that’s not subject to the cap.
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