Car Depreciation Limits Guide 2024 And Earlier Years

Cars with a higher cost have a ceiling value limit assigned to them for the purposes of depreciation claims (DCL).

Car depreciation plays a significant role in the tax deductions you can claim for your motor vehicle expenses.

This guide will provide insights into how the limit on car depreciation works, and the specific limits set for the 2024 and earlier financial years, and how these limits affect your tax deductions.

Depreciation (“decline in value”) claims for Work Related Car Expenses may only be included in the ‘log book’ claim method.

Prior to 1 July 2015 the ‘one-third of actual expenses’ was also available as a claim method.

When applicable, the depreciation limit applies to cars, station wagons and four wheel drives.

There are exemptions associated with use of vehicles by or for, certain disabled persons, and hearses.

The value limits are indexed annually to the ‘motor vehicle purchase sub-group’ of the CPI.

Car Depreciation Value Limits

The following depreciation limits apply:

2024-25 year $69,674 (indexation 445.7 ÷ 435.5)
2023-24 year $68,108 (indexation 435.5 ÷ 413.8)
2022-23 year $64,741 (indexation 413.8 ÷ 388.1)
2021-22 year $60,733 (indexation 388.1 ÷ 377.9)
2020-21 year $59,136 (indexation 377.9 ÷ 368.1)
2019-20 year $57,581 (indexation 368.1 ÷ 373.0)
2018-19 year $57,581 (TD 2018/6)
2017-18 year $57,581 (TD 2017/18)
2016-17 year $57,581 (TD 2016/8)
2015-16 year $57,466 (TD 2015/16)
2014-15 year $57,466 (TD 2014/17)
2013-14 year $57,466 (TD 2013/15)
Earlier years here

What is Car Depreciation and How Does it Work?

Understanding the Basics of Car Depreciation

Car depreciation refers to the decrease in the value of a motor vehicle over time. This reduction in value is influenced by factors including age, mileage, and overall condition.

For tax purposes, the Australian Taxation Office allows business owners to claim a deduction based on the depreciation of their vehicles.

When you purchase a car for business use, you can calculate depreciation to reduce your taxable income, thus lowering your overall income tax liability.

Factors Influencing Car Depreciation Rates

The primary amount on which depreciation is based is the car’s initial purchase price.

Included in the cost for depreciation purposes are certain expenses including taxe, registration fees, and any additional charges that were directly connected with the acquisition of the vehicle, or to make it operational.

For instance, if you paid a destination charge to have the car delivered or incurred costs for essential accessories to make the car roadworthy, those expenses would also be factored into the cost calculation.

Depreciation essentially reflects the gradual decline in the car’s value over time due to factors such as wear and tear, age, and mileage.

Generally, vehicles experience rapid depreciation in the first few years, typically around 20% of its value in the first year. The Tax Office recommends a rate of 22.5% on a diminishing value calculation basis, or 15% on a prime cost basis.

There is an explanation of these depreciation calculation methods here.

These percentage rates assume normal operating conditions. If the vehicle is (for example) routinely used in adverse conditions, alternative depreciation rates may be used (in that case a higher rate, based on the expected useful life of the vehicle).

There is an explanation of self assessed depreciation rates here

How to Calculate Car Depreciation for Tax Purposes

To calculate car depreciation for tax purposes, you can utilize two primary methods: the straight-line method and the declining balance method.

The straight-line method involves spreading the cost of the vehicle evenly over its useful life, while the declining balance method applies a fixed percentage to the remaining value of the car each year.

For the 2024 and 2025 financial years, you must also consider alternative depreciation rules, especially for small businesses, which allow for immediate deductions under certain thresholds.

What are the Car Depreciation Limits for the 2024 Financial Year?

Overview of the Car Depreciation Limit for 2024

For the 2024 financial year, the car depreciation limit is set at a maximum value determined by the ATO.

This limit is critical as it dictates how much of the vehicle cost can be counted when you calculate a depreciation claim for inclusion in your tax deductions.

The car limit for the 2024-25 financial year is adjusted each year according to an inflation formula.

How to Determine Your Car Depreciation Limit

To determine your car depreciation limit, you need to assess the cost of the vehicle and detremine the financial year in which it was acquired.

The depreciation limit for that year can be determined from the yearly table set out below.

How Does the Car Limit Affect Your Tax Deductions?

Understanding the Car Limit and Its Implications

The car limit directly impacts the amount you can claim as a tax deduction for depreciation as part of vehicle expenses

If you purchase a vehicle above the car limit applicable in the year of purchase, only the portion of the vehicle’s cost up to the limit can be included in the depreciation claim.

Impact of Private Use on Car Tax Deductions

Private use of a vehicle can significantly impact the tax deductions (including car depreciation) you can claim.

If you use the car for private purposes, you must calculate how much of the vehicle’s use is attributable to business activities, and only claim that percatage of total expenses.

This is important because only the business-related usage qualifies for deductions.

Keeping detailed logs and records of your trips can help substantiate your claims and provide clarity on how much you can legitimately deduct from your income tax.

How to Claim GST Credits for Motor Vehicle Expenses

Eligibility for Claiming GST Credits on Car Purchases

To claim GST credits on car purchases, you must be registered for GST and use the vehicle primarily for business purposes.

When you purchase a car, you can claim an input tax credit for the GST included in the purchase price to the extent that the vehicle is used predominantly in your business.

This can significantly reduce the effective cost of acquiring a vehicle, making it a vital consideration for business owners.

Maximum GST Credit Calculation for Business Use Vehicles

The maximum GST credit you can claim for business use vehicles is calculated based on the car’s cost and the percentage of business usage.

If the vehicle is used exclusively for business purposes, you can claim the full GST credit.

However, if there is a mix of private and business use, you will need to apportion the GST credit accordingly.

Example Vehicle GST Calculation

Suppose you purchase (in 2024) a vehicle costing $55,000 (including GST) and it is used 70% for business purposes and 30% for private use.

The GST component of the purchase price would be $5,000 (1/11th of $55,000).

To determine the GST credit you can claim, you would apportion the GST according to the percentage of business use.

In this case, 70% of $5,000 is $3,500.

Therefore, you can claim a GST credit of $3,500 for the business use of the vehicle. It is important to keep accurate records of the vehicle’s usage to substantiate your claim and ensure compliance with the Australian Taxation Office (ATO) requirements.

Steps to Claim a GST Credit for Your Motor Vehicle

To claim a GST credit for your motor vehicle, follow these steps: First, ensure you have valid tax invoices for the vehicle purchase.

Next, determine the percentage of business use to calculate the amount of GST you can claim.

Finally, report this amount in your Business Activity Statement (BAS) for the relevant period.

Car depreciation cost limits – earlier years

Year	Cost Limit
2011-12	$57,466
2010-11	$57,466
2009-10	$57,180
2008-09	$57,180
2007-08	$57,123
2006-07	$57,009
2005-06	$57,009
2004-05	$57,009
2003-04	$57,009
2002-2003	$57,009
2001-2002	$55,134
2000-2001	$55,134
1999-2000	$55,134
1998-99	$55,134
1997-98	$55,134
1996-97	$55,134
1995-96	$52,912
1994-95	$51,271
1993-94	$48,415
1992-93	$47,280
1991-92	$45,462
1990-91	$45,056
1989-90	$42,910
1988-89	$39,331
1987-88	$34,775
1986-87	$29,646
1985-86	$26,660

The limit that applies to each car is the limit applicable for the year in which the car is first used for business purposes.

GST and the car depreciation limit

A car purchased for more than the car depreciation limit has a maximum GST credit of one-eleventh of the limit.

Thus for example in 2023-24, the maximum GST credit would be $6,191 (that is, 1/11 x $68,108). This same limit also applies to cars which are fuel efficient.

Note that the Luxury Car Tax Thresholds are separately determined.