Bought a $300,000 Luxury Car for Business? The Tax Result When You Sell It May Surprise You

Buying an expensive car through your business can create several tax questions.

Many Sydney business owners assume that if they buy a high-value passenger car, claim only the limited GST credit, and restrict depreciation, they will simply pay 1/11 of the sale price as GST when they eventually sell the vehicle.

However, the tax treatment can be more complicated.

When your business buys and later sells an expensive vehicle, you may need to consider three separate calculations:

1. The GST credit available when you purchase the vehicle
2. The GST and potential Division 132 adjustment when you sell it
3. The income-tax balancing adjustment when you dispose of the depreciating asset

Therefore, if you are searching for a local accountant Sydney, local accountant Belrose, local tax agent Sydney or local tax agent Belrose, understanding these rules can help you avoid costly mistakes when dealing with a high-value business vehicle.

Example: Buying a $300,000 Car and Selling It for $200,000

Let’s look at a simplified example.

Assume your business:

• Purchases a car for $300,000 GST-inclusive
• Uses the vehicle 100% for business
• Is GST registered
• Purchases a passenger car subject to the car limit
• Uses the 2025–26 car limit of $69,674
• Later sells the vehicle for $200,000 GST inclusive
• Has a written-down adjustable value of $60,000 immediately before the sale

The ATO sets the 2025–26 car limit at $69,674. Where a passenger car exceeds the applicable car limit, the business generally cannot claim GST credits on the full purchase price.

So, let’s work through what happens.

Step 1: How Much GST Can You Claim on a $300,000 Car?

Normally, the GST included in a $300,000 purchase would be:

$300,000 ÷ 11 = $27,272.73

However, the passenger-car rules restrict the GST credit when the vehicle exceeds the applicable car limit.

For 2025–26, the car limit is:

$69,674

Therefore, the maximum GST credit would be approximately:

$69,674 ÷ 11 = $6,334

So, instead of claiming approximately $27,273, the business may only claim:

$6,334 GST

That creates a difference of almost $21,000.

Consequently, businesses buying high-value passenger vehicles need to understand the car-limit rules before they prepare their BAS.

Step 2: Does the Business Depreciate the Full $300,000?

No.

The business cannot simply depreciate the entire $300,000 purchase price for income-tax purposes when the passenger car falls under the car-limit rules.

Instead, the applicable car-limit rules restrict the amount of the vehicle’s cost that can contribute to depreciation deductions.

For 2025–26, that limit is:

$69,674

So, although the business actually paid $300,000 for the vehicle, it cannot automatically claim depreciation based on the full purchase price.

This distinction becomes particularly important when the business later sells the car.

Step 3: What Happens When the Business Sells the Car for $200,000?

Now we reach an area that many business owners overlook.

If the business makes a taxable sale for $200,000 GST-inclusive, the GST component would normally be:

$200,000 ÷ 11 = $18,181.82

At first glance, that might suggest the business needs to account for the entire $18,181.82 as GST.

However, the analysis does not necessarily end there.

Division 132 GST Decreasing Adjustment

Division 132 of the GST Act can provide a decreasing adjustment when a business sells an asset as a taxable supply but received less than the full input tax credit when it originally acquired the asset.

The ATO explains this mechanism in GSTR 2004/8.

For this simplified example, we can apply the relevant formula.

Full GST credit without the car limit

$300,000 ÷ 11 = $27,272.73

GST credit actually available

$6,334

GST on the $200,000 sale

$200,000 ÷ 11 = $18,181.82

The simplified Division 132 calculation becomes:

$18,181.82 × [1 − ($6,334 ÷ $27,272.73)]

This produces an approximate decreasing adjustment of:

$13,959

Therefore:

GST on taxable sale: $18,181.82

Less Division 132 decreasing adjustment: $13,959.15

Approximate net GST effect: $4,222.67

This example shows why you should not automatically assume that the business will simply pay 1/11 of the entire sale price without considering the relevant GST adjustment.

The actual BAS treatment can vary depending on the vehicle, ownership structure, business-use percentage, previous adjustments, and other circumstances.

Step 4: What Happens to the $60,000 Written-Down Value?

You also need to complete a separate income-tax calculation.

Importantly, the GST calculation and income-tax calculation do not produce the same result.

When a business disposes of a depreciating asset, it generally compares the asset’s termination value with its adjustable value.

However, special rules can apply when the passenger car originally fell under the car limit.

For this type of calculation, you cannot simply compare the $200,000 sale price with the $60,000 written-down value.

Instead, you may need to adjust the termination value using the car-limit formula.

Working through the example

The original purchase price was:

$300,000

Less the GST input tax credit claimed:

$6,334

This gives an actual cost for the relevant calculation of approximately:

$293,666

The $200,000 GST-inclusive sale price contains GST.

Therefore, the sale proceeds excluding GST are approximately:

$200,000 − $18,181.82 = $181,818.18

Now apply the car-limit ratio:

$181,818.18 × $69,674 ÷ $293,666

This produces an adjusted termination value of approximately:

$43,137

The written-down adjusted value was:

$60,000

So:

$60,000 − $43,137 = approximately $16,863

Because the adjusted termination value is lower than the adjustable value, the business may generally have a deductible balancing adjustment of approximately $16,863, subject to the taxpayer’s actual circumstances and taxable-use percentage.

Again, this calculation demonstrates why selling an expensive business vehicle requires more than simply looking at the sale price.

The Numbers at a Glance

Don’t Confuse the Car Limit with the Luxury Car Tax Threshold

When researching luxury car tax Australia, business owners often confuse the car limit with the Luxury Car Tax (LCT) threshold.

They serve different purposes.

The car limit can affect:

• GST credits
• depreciation deductions
• balancing adjustments when the vehicle is sold

On the other hand, the Luxury Car Tax threshold helps determine whether LCT applies to a luxury vehicle transaction.

Therefore, a vehicle can raise questions about both the car limit and LCT without those rules producing the same tax outcome.

Keeping the two concepts separate can prevent confusion when you prepare the transaction records.

What About Business Use and Private Use?

The example above assumes 100% business use.

Real-world situations can look very different.

For example, a company director may use the vehicle for both business and private travel. In that situation, the business may need to consider the private-use component when calculating its GST, depreciation and other tax obligations.

You may also need to consider Fringe Benefits Tax (FBT) if a company or other entity provides the vehicle to an employee or director for private use.

As a result, the vehicle’s ownership structure and actual use can significantly affect the final tax position.

What About Utes, Vans and Commercial Vehicles?

Not every vehicle follows the same rules as a passenger car.

For example, a ute or van may receive different tax treatment depending on its design, carrying capacity and how the business uses it.

Therefore, don’t assume that the tax treatment of a $150,000 passenger vehicle automatically applies to a commercial vehicle with a similar purchase price.

Before you claim GST or depreciation, check how the vehicle fits within the relevant tax rules.

Why This Matters for Sydney Business Owners

For a business buying a $100,000, $200,000 or $300,000 vehicle, the accounting entry represents only the beginning of the tax calculation.

You may need to consider:

• GST input-tax-credit restrictions
• Passenger-car depreciation limits
• Luxury Car Tax
• Business and private use
• Division 40 depreciation
• Division 132 GST adjustments
• Balancing adjustments when you sell the vehicle
• Fringe Benefits Tax
• Logbooks and other substantiation requirements
• Whether the vehicle qualifies as a passenger car under the relevant rules

More importantly, the correct treatment depends on the actual vehicle, purchase price, purchase date, ownership structure and business-use percentage.

Need a Local Accountant in Sydney or Belrose?

At EndureGo Tax, we help businesses and individuals work through complex tax matters involving vehicles, GST, depreciation, FBT and business tax planning.

If you are looking for a:

Local Accountant Sydney

Local Accountant Belrose

Local Tax Agent Sydney

Local Tax Agent Belrose

We can review your vehicle transaction before you lodge your BAS or tax return.

We can assess the relevant details, including the vehicle type, purchase price, ownership structure, GST treatment, and business-use percentage, so you can understand how the rules apply to your situation.

With an expensive vehicle, one incorrect assumption can change the tax outcome by thousands of dollars.

The Takeaway

Buying a $300,000 car does not mean your business can claim $300,000 of depreciation.

Likewise, claiming only a limited GST credit when you purchase the vehicle does not necessarily mean you will simply pay 1/11 of the entire sale price when you sell it.

Instead, you may need to consider the GST rules, Division 132, the passenger-car limit and the income-tax balancing adjustment separately.

So, before you lodge your BAS or tax return, check the numbers carefully.

With high-value vehicles, getting the tax treatment right from the beginning can make a significant difference.