Car finance tax deductions are included with commercial finance products, but personal car loan payments are not deductible, though some expenses may be allowed. Especially if preparing your own tax return and if you are financing a new vehicle for the new financial year, it is important to know what deductions the Australian Taxation Office (ATO) allows on your type of loan.
The ATO has been very forthcoming in warning taxpayers that they will be looking closely at expenses claimed on personal income tax returns. Making mistakes on a return may lead to outcomes including penalties applied, extra unexpected tax payable and an audit by the ATO. Note that those that accrue debts with the ATO that are subject to interest, cannot deduct that interest from their taxable income after 1 July 2025.
For those completing their 2024/25 returns and for buyers budgeting for car purchases in 2025/26, we provide details on the deductions which apply to both business and personal motor vehicle financing.
Private Car Finance Tax Deductions
Individuals with a personal car loan such as Secured Car Finance cannot claim their loan payments as a tax deduction, even if they use the vehicle for work-related purposes. Owners of privately-owned vehicles which are used at times for purposes attached to employment, may be eligible to claim some expenses.
The ATO clearly sets out the guidelines for private vehicle owners claiming vehicle expenses on their tax return. These guidelines include:- the individual must lease or own the vehicle; the mileage must be related to their work; driving from home to a place of employment is not a claimable purpose; the individual must have spent money on the expense and not have received a reimbursement for those expenses from their employer; if a car allowance is received from the employer it must be claimed in assessable income; and a number of other conditions.
If you are an employee and you use your car for work-related purposes, it is advised that you read the ATO conditions and confirm with your employer that the appropriate arrangements are in place. If you are paid a car allowance, the employer should be reporting this payment to the ATO when reporting wages. These reports go direct to the ATO and are used to generate returns.
Novated Lease Car Finance Tax Deductions
Employees that have entered into a Novated Lease, Salary Sacrificing, vehicle financing agreement, are not eligible to claim tax deductions. With this type of loan, the employer makes the repayments and receives the relevant business tax deduction. FBT may also need to be paid by the employer.
As the car is owned by the employer over the Lease term, the employee would not be entitled to claim any expenses for work-related trips. Any expenses they may incur, should be reimbursed by the employer.
With this type of financing, the employee may receive a tax benefit if the sacrificed salary places them in a lower tax bracket. Coming into the new financial year, if this type of car loan arrangement is of interest to you, contact us for a quote and more details.
Business Car Finance Tax Deductions
All types of commercial car loans include tax deductions. Chattel Mortgage and Commercial Hire Purchase deliver a deduction when the vehicle is depreciated in line with ATO schedules, and the interest payments and lender fees are also deductible. Lease payments are fully deductible as they are treated as an expense by the ATO.
The business then typically claims all the costs associated with running, maintaining, registering, insuring and servicing the vehicle. If a company car is provided to an employee and that vehicle is used for some private trips, Fringe Benefits Tax (FBT) applies. The ATO provides rulings as to how private:business mileage is determined to arrive at the FBT payable. This usually involves the employee keeping a log book for a minimum time when the vehicle is purchased, or ongoing.
Where an employer enters into a Novated Lease Vehicle Finance arrangement with an employee, the employer and not the employee is eligible for any tax deductions related to the vehicle. Where an employee uses their own vehicle for work purposes, they should be reimbursed in line with ATO rulings. This typically involves a per kilometre reimbursement which is included in their wages.
Tax Rulings for 2025/26 Car Purchases
If purchasing new cars for the 2025/26 financial year, the same tax rulings apply as for 2024/25. Tax deductions on business vehicles remain the same for the relevant credit products. Changes only apply where the government announces a temporary change to tax policy such as Instant Asset Write-off (IAWO). Currently, IAWO does not apply to assets purchased in 2025/26.
While no tax deductions are available for personal vehicle purchases, individuals can minimise their car loan payments by securing the best interest rate financing through Jade.
For loans that are optimised for car finance tax deductions, Contact Jade Finance online or by phone 1300 000 008.
DISCLAIMER: NO LIABILITY IS ACCEPTED IF ERRORS OR MISREPRESENTATIONS ARE FOUND IN THIS ARTICLE. THE ARTICLE IS PREPARED AND PRESENTED FOR GENERAL INFORMATIVE PURPOSES AND IS NOT INTENDED TO BE THE SOLE SOURCE OF INFORMATION FOR MAKING FINANCIAL DECISIONS. THOSE REQUIRING GUIDANCE AND ADVICE SHOULD CONSULT A FINANCIAL ADVISOR.
