Buying a Work Ute: GST, Depreciation and Trade-ins Explained
“It’s for work, so I can claim it on tax.”
That is a common reason for buying a new ute. But how much can you actually claim? Can you recover all the GST? And what happens when you trade it in a few years later?
The answers depend on the vehicle you buy and how you use it. Even two similar-looking utes can have different tax outcomes.
Let’s work through the main rules, with examples.
1. Is a “one-tonne ute” really a one-tonne ute?
A ute might be commonly described as a “one-tonner”, but the carrying capacity of the particular model could be less than one tonne. Check the manufacturer’s specifications for the exact model and variant you are considering, rather than relying on the general description.
The carrying capacity, or payload, includes passengers and their belongings as well as tools, equipment and other goods. It is not simply the weight you can put in the tray.
For tax purposes, a vehicle designed to carry less than one tonne and fewer than nine passengers generally falls within the definition of a car.
However, that does not automatically mean the car depreciation limit applies. The limit applies to cars designed mainly to carry passengers.
A dual-cab ute designed mainly to carry goods may fall outside that limit, even when its payload is below one tonne.
An example
Consider a five-seat ute with a payload of 918 kg.
Under the approach described in the ATO’s ruling MT 2024, each seating position, including the driver’s, is allocated 68 kg when assessing passenger capacity.
| Calculation | Weight |
|---|---|
| Five seats × 68 kg | 340 kg |
| Remaining capacity for goods: 918 kg − 340 kg | 578 kg |
In this example, the capacity for goods exceeds the passenger capacity. This supports treating the ute as designed mainly to carry goods under that approach.
The 68 kg figure is a standard used for this tax assessment. It is not a suggestion that every occupant actually weighs 68 kg!
MT 2024 deals with fringe benefits tax, but an ATO-certified response confirms that this approach can also be used when assessing passenger purpose for depreciation.
The practical point: check the exact model and specifications before assuming the depreciation limit applies—or that it does not.
Further reading: ATO ruling MT 2024, paragraphs 14-17 and ATO explanation of dual-cab utes and depreciation.
2. Can you claim all the GST on the purchase?
Being registered for GST does not always mean you can recover all the GST included in an expensive vehicle’s price.
For a car subject to the purchase GST cap, the maximum credit is generally one-eleventh of the car limit, before allowing for any private use.
There are exceptions, including commercial vehicles not designed mainly to carry passengers.
Comparing two $88,000 vehicles
For the following examples, assume:
- The business is registered for GST.
- The vehicle is used entirely for business.
- The purchase includes GST and the business has a valid tax invoice.
- The price is $88,000, including $8,000 GST.
- Registration, stamp duty, luxury car tax and other charges are excluded.
We will use the 2025–26 car limit of $69,674 throughout these worked examples. Limits can change between financial years.
| Purchase | Commercial vehicle qualifying for the exception | Car subject to the GST cap |
|---|---|---|
| Purchase price | $88,000 | $88,000 |
| GST included | $8,000 | $8,000 |
| GST credit available | $8,000 | $6,334 |
| Cost after the GST credit | $80,000 | $81,666 |
For the capped car, the maximum GST credit is:
$69,674 ÷ 11 = $6,334
That leaves $1,666 of purchase GST that the business cannot recover.
These are two different tax treatments for comparison. We are not assuming that a particular Ranger Wildtrak X is subject to the caps.
Further reading: ATO – Purchasing a motor vehicle.
3. How does the depreciation limit work?
Depreciation allows you to claim the eligible cost of a business vehicle over time.
Where the car limit applies, the calculation starts by subtracting the GST credit from the actual purchase price. The remaining cost is then compared with the depreciation limit.
Using our capped car:
| Calculation | Amount |
|---|---|
| Purchase price | $88,000 |
| Less GST credit | $6,334 |
| Remaining cost | $81,666 |
| Maximum starting cost for depreciation | $69,674 |
This means depreciation is calculated using $69,674.
You do not subtract the GST credit from the $69,674 limit itself.
For the commercial vehicle outside the limit, depreciation would instead start with its eligible cost of $80,000 after GST.
Also, buying a vehicle does not necessarily mean you can deduct the whole eligible cost immediately. The amount claimed each year depends on the depreciation rules applying to your business.
Keeping it for four years does not automatically mean claiming one-quarter each year.
Further reading: ATO – Guide to depreciating assets, particularly “GST input tax credits” and “Car limit”.
4. What happens to the GST when you trade it in?
Four years later, you trade the vehicle in for $44,000 including GST.
Assuming the business remains GST registered and the sale is fully taxable:
| Trade-in | Amount |
|---|---|
| Trade-in allowance | $44,000 |
| GST payable to the ATO | $4,000 |
| Amount remaining after GST | $40,000 |
The GST is calculated on the actual trade-in price.
This applies even if the GST credit on the original purchase was capped. There is no matching reduction simply because you could not recover all the purchase GST.
In our capped-car example:
- The purchase contained $8,000 GST, but the business claimed only $6,334.
- The $44,000 trade-in contains $4,000 GST, which the business must account for in full.
A trade-in still counts as a sale, even when the dealer simply deducts the allowance from the replacement vehicle’s price.
Further reading: ATO – GST and motor vehicles, including disposal and trade-ins.
5. Can selling the vehicle increase your taxable income?
Yes, even when you sell it for less than you originally paid.
Under general depreciation rules, the tax calculation compares the vehicle’s sale value with its remaining value in your depreciation records.
This remaining value is called its tax written-down value.
If the relevant sale value is higher, the difference generally increases your taxable income. This is called a balancing adjustment.
It effectively adjusts the deductions already claimed to reflect the disposal.
A special rule for cars affected by the depreciation limit
Where the car limit applied, the sale value used for this income-tax calculation is also reduced.
That is different from the GST calculation, which uses the full taxable sale price.
For our capped car, assuming no later capital additions:
$40,000 sale proceeds after GST × $69,674 car limit ÷ $81,666 original cost after GST credits
This gives an adjusted sale value of approximately $34,126.
Suppose the car’s tax written-down value after four years is $25,000. This is an assumed figure for illustration; the actual balance depends on the deductions claimed.
| Income-tax calculation | Amount |
|---|---|
| Adjusted sale value | $34,126 |
| Less remaining tax written-down value | $25,000 |
| Amount added to taxable income | $9,126 |
The $9,126 is additional taxable income, not a $9,126 tax bill.
If it were all taxed at 30% plus the 2% Medicare levy, the additional tax would be approximately $2,920.
Different disposal rules apply if the vehicle is included in a small-business depreciation pool, so this example should not be used as a pooling calculation.
Further reading: ATO – Guide to depreciating assets, “Balancing adjustment rules for cars”. The proportional adjustment is set out in section 40-325 of the Income Tax Assessment Act 1997.
6. A tax deduction does not pay for the vehicle
Let’s return to the commercial vehicle that qualifies for full purchase GST credits and is outside the depreciation limit.
It cost $80,000 after the GST credit and returned $40,000 after GST on trade-in.
That is a $40,000 ownership cost, before running costs and income-tax savings.
Now assume the owner is a sole trader whose relevant deductions save income tax at 30%, plus the standard 2% Medicare levy.
The 30% bracket applies to taxable income above $45,000 and up to $135,000. For this simplified example, we assume all the relevant deductions and disposal adjustments fall within that bracket, the full Medicare levy applies, and tax offsets do not change the result.
| Four-year ownership cost | Amount |
|---|---|
| Purchase cost after GST credit | $80,000 |
| Less trade-in proceeds after GST | $40,000 |
| Cost before income-tax savings | $40,000 |
| Tax savings at 32% | $12,800 |
| Cost remaining after tax savings | $27,200 |
The tax deductions help, but the owner still bears $27,200 of the cost.
That is approximately $6,800 a year over four years, before interest, insurance, registration, servicing, tyres and fuel.
The tax savings also occur over time. They are not necessarily received when the vehicle is purchased.
For every dollar deducted at a 32% tax rate, you save 32 cents in tax. You still bear the other 68 cents.
Further reading: ATO – Individual income tax rates and ATO – Medicare levy.
Before you sign the purchase contract
The right vehicle can be an important business tool. Knowing its tax treatment helps you understand what it will actually cost.
Before buying, send your accountant the dealer’s quote and specifications for the exact vehicle.
We can check the GST credit, depreciation treatment and any issues arising from private use or providing the vehicle to an employee or director.
At Highland Accounting Services, we can help you work through the figures before you commit to the purchase.
These examples use the 2025–26 car limit, assume 100% business use and exclude finance and running costs. Actual claims depend on the vehicle, business structure, private use and applicable tax rules.
