Changes to car thresholds from 1 July 2025

Editor: The ATO has updated the following car thresholds for the 2026 income year.

Income tax

The car limit for the 2026 income year is $69,674. This is the highest value that a taxpayer can use to calculate depreciation on a car where:

• they use the car for work or business purposes; and

• they first use or lease the car in the 2026 income year.

A business owner can claim a tax deduction on expenses for motor vehicles they use for business purposes. If they are using a motor vehicle for both business and private purposes, they can only claim a deduction for the business part. They must be able to show the percentage they claim as business use and have records to support their claim.

Goods and services tax (GST)

If a taxpayer is buying a car and the price is more than the car limit, the highest input tax credit they can claim (except in certain circumstances) is one-eleventh of the car limit. For the 2026 income year, the highest input tax credit they can claim is $6,334 (i.e., one-eleventh of $69,674).

Input tax credits need to be claimed within the four year time limit. A taxpayer cannot claim an input tax credit for luxury car tax when they buy a luxury car (discussed below), even if they use it for business purposes.

Luxury car tax (LCT)

The LCT threshold for the 2026 income year is:

• $91,387 for fuel-efficient vehicles — in line with an increase to the 'motor vehicle purchase sub-group' of the Consumer Price Index ('CPI');

• $80,567 for all other luxury vehicles — in line with an increase in the 'All Groups' CPI.

From 1 July 2025, the definition of a 'fuel-efficient vehicle' will also change, affecting vehicles with a fuel consumption rate of between 3.5 and 7 litres per 100 km. The indexation rates applying to the thresholds for fuel-efficient vehicles and other vehicles will be aligned.

Dealers buying luxury cars under quote need to properly quote to meet their obligations.