If you run a business and use a car, GST on car expenses business Australia rules affect how much you can actually reclaim. Getting the GST side right is separate from — but closely linked to — your income tax deduction, and the two calculations don’t always line up. This guide walks through how input tax credits work, where the luxury car limit bites, and what records the ATO expects you to keep.
GST and business car expenses: the basics
GST is a 10% tax added to most goods and services in Australia. When you buy fuel, pay for servicing, or purchase a vehicle for business use, you pay GST as part of the price. If you are registered for GST, you can claim back the GST you paid as an input tax credit (ITC) on your Business Activity Statement (BAS).
The key condition is that the expense must relate to your business activities — not private use. If you use the car for both business and personal purposes, you can only claim the business-use proportion of the GST.
For example, if your car is used 60% for business and you pay $110 in fuel (including $10 GST), you can claim $6 as an input tax credit.
Claiming GST credits (input tax credits) on car costs
Most regular running costs qualify for ITCs, provided you are GST-registered and the cost relates to business use:
- Fuel and oil — claim the business-use proportion
- Servicing and repairs — same proportion rule applies
- Tyres and parts — business-use proportion
- Insurance — only the business-use portion; many insurers split the premium
- Registration — the government component of rego usually carries no GST, but stamp duty and CTP components vary by state
When you purchase a car outright, you can claim an ITC on the GST embedded in the purchase price — but the luxury car tax limit applies (see below).
Your business-use percentage for GST purposes should be based on actual records, not an estimate. A logbook that records every trip is the most defensible approach and also supports your income tax claim under the logbook method. See ATO logbook requirements for what your logbook must include.
The luxury car limit and GST
The ATO caps the amount of GST you can claim when you buy an expensive car. For the 2025-26 income year, the luxury car tax threshold is $80,567 for fuel-efficient vehicles and $69,674 for other vehicles.
Even if you buy a car that costs more than these thresholds, your GST credit is capped at 1/11th of the relevant limit. So for a standard car purchased for $120,000, the maximum GST credit is $69,674 ÷ 11 = $6,334 — not $10,909 (1/11th of the full purchase price).
This cap applies whether you are a sole trader, company, or trust. The remaining GST above the cap is simply a cost you absorb.
If you lease a car instead of buying it, the monthly lease payments generally carry GST at 1/11th of each payment. The luxury car limit does not apply to lease payments in the same way, although the lease itself may be structured to reflect the cap.
GST on the logbook method
If you use the logbook method for income tax purposes, your logbook business-use percentage also drives your GST claim. The two calculations are linked but not identical — income tax uses the logbook percentage applied to total running costs, while GST uses the same percentage applied to the GST component of those costs.
Here is how the numbers flow for a car with 70% business use over a quarter:
| Cost item | Total paid (inc. GST) | GST component | Business-use % | ITC claimable |
|---|---|---|---|---|
| Fuel | $440 | $40 | 70% | $28.00 |
| Service | $330 | $30 | 70% | $21.00 |
| Insurance | $1,100 | $100 | 70% | $70.00 |
| Total | $119.00 |
You report this $119 as a GST credit on your BAS for that quarter. Keep all tax invoices — the ATO can ask to see them.
GST for sole traders vs companies
Sole traders must register for GST if their GST turnover is $75,000 or above in any 12-month period. Below that threshold, registration is optional but may be worthwhile if you have significant business car expenses.
Once registered, a sole trader claims ITCs on their BAS just like a company does. The private-use adjustment applies in the same way.
Companies and trusts are more likely to be GST-registered from the outset and may own cars under the entity rather than through a personal arrangement. The rules on private-use adjustments still apply — if a director or employee uses a company car personally, the business cannot claim the GST on the private-use portion.
One difference worth noting: sole traders who are not GST-registered can still deduct car expenses for income tax purposes using the cents-per-kilometre or logbook method. They just cannot claim the GST component as a credit. If you are not registered, the full GST-inclusive cost is your deductible amount.
For a broader picture of what sole traders can deduct, see sole trader car expenses and tax deductions.
Record-keeping for GST on car expenses
The ATO requires you to hold tax invoices for any GST credit claim over $82.50 (GST-inclusive). For smaller purchases, a receipt is sufficient. Your records must show:
- Supplier name and ABN
- Date of supply
- Description of goods or services
- Price and GST amount (or a statement that GST is included)
For car expenses, this means keeping every fuel receipt, workshop invoice, and insurance schedule. Digitising these — by photographing or scanning — is acceptable as long as the copies are legible and accessible.
Your logbook must cover a continuous 12-week period and be kept for five years. The ATO can audit your BAS lodgements for up to five years, so your records need to match your claims throughout that window.
Using an app like Tripbook to record every business trip keeps your odometer readings accurate, which in turn locks in the business-use percentage underpinning both your income tax and GST claims. Consistent, timestamped records are the best defence if the ATO ever questions your figures.
For more on the income tax side of car expenses, see the ATO car expense guide and the work-related car expenses overview.
Keeping the GST and income tax sides of your car expenses aligned takes some initial effort, but once your logbook and record-keeping system are in place, the process becomes straightforward. The biggest mistake business owners make is mixing up their personal and business proportions — consistent trip logging removes that risk.
Download Tripbook to start tracking business kilometres and build the records you need to support your GST on car expenses business Australia claims.
