The 2024-25 financial year is in sight, and significant changes have been made to car thresholds, which are crucial for business owners to understand for tax purposes.

Here’s a detailed overview of what’s new and how it might affect your business.

Income Tax: Car Limit Increase

The car limit for the 2024–25 income year has been set at $69,674. This figure is the maximum value you can use to calculate depreciation on a car, provided the following conditions are met:

• The car is used for business purposes.
• The car is first used or leased during the 2024–25 income year.

As a business owner, you can claim a tax deduction for expenses incurred for motor vehicles used for business purposes. However, if the vehicle is used for both business and personal purposes, you can only claim a deduction for the business portion. It’s essential to accurately track and record the percentage of business use to support your claim.

Goods and Services Tax (GST): Maximum Credit

When purchasing a car, if the price exceeds the car limit, the maximum GST credit claimable (with few exceptions) is one-eleventh of the car limit. For the 2024–25 income year, this translates to a maximum GST credit of $6,334 (calculated as 1/11 of $69,674).

It’s important to note that you cannot claim a GST credit for any luxury car tax (LCT) paid when buying a luxury car, even if it is used for business purposes.

Luxury Car Tax (LCT) Thresholds

The LCT thresholds for the 2024–25 income year have also been updated:

• Fuel-Efficient Vehicles: The threshold is $91,387, reflecting an increase tied to the motor-vehicle purchase sub-group of the Consumer Price Index (CPI).
• Other Luxury Vehicles: The threshold is $80,567, in line with the ‘All Groups’ CPI increase.

When considering the purchase of a luxury car, it is crucial to be cautious of schemes where a third party offers to buy the car from a dealer on your behalf at a discount. Such arrangements can be risky, potentially aiming to evade LCT. You might face issues related to inadequate insurance coverage or purchasing a defective vehicle.

Staying informed about these changes is vital for optimising your business’s tax deductions and ensuring compliance with the latest regulations. Proper documentation and adherence to these new thresholds can help you maximise your tax benefits while avoiding potential pitfalls.

For more information about purchasing a car for your business, why not consult with your trusted tax adviser?