Electric Vehicle Tax Deductions for Businesses 2025

Electric vehicles offer Australian businesses substantial tax advantages beyond their environmental credentials. From immediate GST refunds to significant depreciation deductions and ongoing expense claims, the tax benefits can reduce your effective EV cost by 30-50%. This comprehensive guide explains every tax deduction available, how to claim them correctly, and the records you need to keep to maximise your business EV tax benefits.

EV Tax Deduction Overview

When you finance or purchase an electric vehicle through your business, you can access multiple tax deductions that significantly reduce the true cost. These deductions are available to sole traders, partnerships, companies, and trusts that use EVs for business purposes.

The main tax deductions available are:

• GST Input Tax Credit: Claim back the GST component of the purchase price or lease payments
• Depreciation: Deduct the decline in value of the vehicle each year
• Interest Expenses: Claim the interest portion of finance repayments
• Running Costs: Deduct electricity, insurance, registration, servicing, and other operating expenses
• Instant Asset Write-Off: Potentially deduct the full cost immediately (subject to eligibility and thresholds)

These deductions work together to dramatically reduce your after-tax cost. For a business with a 30% tax rate purchasing a $70,000 EV, total first-year tax benefits typically exceed $25,000 when combining GST refunds and deductions.

Eligibility Requirements

To claim EV tax deductions, you must:

• Have an ABN and operate a business
• Use the vehicle for business purposes (partial business use is acceptable)
• Purchase or finance the EV through your business name
• Maintain appropriate records (logbooks, receipts, invoices)
• Lodge tax returns and BAS statements correctly

GST Claims on Electric Vehicles

If your business is registered for GST, one of the most immediate benefits is claiming back the GST component of your EV purchase or lease payments.

GST on Chattel Mortgage or Purchase

When you purchase an EV through a chattel mortgage or outright purchase, you can claim the full GST amount in your next Business Activity Statement (BAS).

How it works:

• The supplier charges GST on the sale price
• You receive a tax invoice showing the GST amount
• You claim this as an input tax credit in your next BAS
• The ATO refunds you the GST within 14 days of processing your BAS

GST on Finance Leases

With a finance lease, you claim GST progressively on each lease payment rather than upfront.

How it works:

• Each lease payment includes a GST component
• You claim this GST as an input tax credit in the BAS period when you make the payment
• Over the lease term, you recover the same total GST as with a purchase

Example: Monthly lease payment of $1,100 (inc GST) = $100 GST claimable each month

GST Registration Requirements

To claim GST, your business must be:

• Registered for GST with the ATO
• Lodging regular BAS statements
• Holding valid tax invoices showing GST

If you're not currently GST registered but your turnover is approaching $75,000, consider registering before purchasing your EV to access these benefits.

Depreciation Deductions

Depreciation (also called capital allowance) lets you claim a tax deduction for the decline in value of your EV over time.

Depreciation Methods

You can choose between two ATO-approved depreciation methods:

1. Diminishing Value Method (200% declining balance)

This method provides higher deductions in early years, which most businesses prefer for better cash flow.

How it works:

• Year 1: 200% ÷ effective life × cost
• Subsequent years: 200% ÷ effective life × (previous year's value)
• Deductions decline each year as the base value reduces

Effective life: The ATO sets effective life for passenger vehicles at 8 years (12.5% prime cost rate)

Calculation: 200% ÷ 8 years = 25% diminishing value rate

2. Prime Cost Method (straight-line)

This method provides equal deductions each year.

How it works:

• Same deduction amount each year
• Calculate: Cost ÷ effective life
• Using 8 year effective life = 12.5% per year

Example: $63,636 ÷ 8 years = $7,955 per year for 8 years

Car Cost Limit

The ATO sets a maximum depreciation limit for passenger vehicles (luxury car tax threshold). For 2024-25, this limit is $69,674.

If your EV costs more than this, you can only depreciate up to the limit. However, many popular business EVs fall under this threshold:

• Tesla Model 3 RWD: ~$64,000 ✓
• BYD Atto 3: ~$48,000 ✓
• MG ZS EV: ~$46,000 ✓
• Tesla Model Y RWD: ~$69,000 ✓

Instant Asset Write-Off

Small businesses (aggregated turnover under $10 million) may be eligible for instant asset write-off, allowing you to deduct the full cost in the year of purchase.

Current rules (check with ATO for latest):

• Available for eligible small businesses
• Subject to asset thresholds (which change regularly)
• Passenger vehicles are subject to the car cost limit
• Must be used or installed ready for use by 30 June

If eligible, you could claim up to $69,674 (the car limit) as an immediate deduction rather than depreciating over 8 years.

Important: Always check current ATO rules as instant asset write-off legislation changes frequently.

Interest Expense Deductions

If you finance your EV through a chattel mortgage or business loan, the interest component of your repayments is fully tax deductible.

How Interest Deductions Work

Each loan repayment consists of principal and interest. The interest portion is a deductible business expense.

Finance Lease Deductions

With a finance lease, the entire lease payment (principal + interest combined) is tax deductible as a business expense. You don't separate interest from principal—the full payment is simply claimed as a lease expense.

This makes accounting simpler whilst achieving similar overall tax benefits.

Running Cost Deductions

All costs associated with operating your business EV are tax deductible based on business use percentage.

Deductible Running Costs Include:

• Electricity/charging costs: Home charging and public charging fees
• Insurance: Comprehensive, third party, or any vehicle insurance
• Registration: Annual registration fees
• Servicing: Regular maintenance, brake fluid, cabin filters, etc.
• Tyres: Replacement tyres and wheel alignment
• Roadside assistance: RACQ, NRMA, or other membership fees
• Parking and tolls: When incurred for business purposes
• Car wash/detailing: Reasonable cleaning costs

Claiming Methods

You have two methods to claim car expenses:

1. Logbook Method (Recommended)

Claim actual expenses based on the business use percentage established by a logbook.

Requirements:

• Maintain a logbook for at least 12 continuous weeks
• Record all vehicle trips showing: date, odometer start/end, kilometres travelled, purpose
• Calculate business use percentage
• Apply this percentage to all actual vehicle expenses
• Keep receipts for all expenses claimed
• Logbook valid for 5 years (then update)

Example: Logbook shows 75% business use. Your annual running costs are $3,500. You claim 75% × $3,500 = $2,625.

2. Cents Per Kilometre Method

Claim up to 5,000 business kilometres at the ATO's set rate (currently 85 cents per km for 2024-25).

Maximum claim: 5,000 km × $0.85 = $4,250 per year

This method is simple but usually results in lower deductions for most business vehicles. The logbook method typically provides larger claims.

Electricity Cost Claims

One unique aspect of EVs is claiming electricity costs. You can claim:

• Home charging: Calculate cost per charge (kWh used × electricity rate) and keep a log of charges
• Public charging: Keep receipts from charging networks
• Workplace charging: Generally no claim if employer provides free charging (unless reimbursed)

Typical costs: Tesla Model 3 uses ~15kWh/100km. At $0.28/kWh, that's $4.20 per 100km or ~$2,100/year for 50,000km.

Complete Tax Benefit Example

Let's combine all deductions to show the total first-year tax benefit for a business purchasing a $70,000 Tesla Model 3.

Scenario: $70,000 Tesla Model 3 (Chattel Mortgage)

Business details:

• ABN registered business
• GST registered
• Company tax rate: 30%
• Business use: 75%
• Finance: Chattel mortgage, 7.5% p.a., 5 years, 30% balloon

Year 1 Tax Benefits:

1. GST Refund (immediate):

• Purchase price: $70,000 (inc GST)
• GST refund: $6,364
• Cash benefit: $6,364

2. Depreciation Deduction:

• Ex-GST cost: $63,636
• Diminishing value (25%): $15,909
• Business use (75%): $15,909 × 75% = $11,932
• Tax saving: $11,932 × 30% = $3,580
• Tax benefit: $3,580

3. Interest Expense Deduction:

• Year 1 interest: ~$5,075
• Business use (75%): $5,075 × 75% = $3,806
• Tax saving: $3,806 × 30% = $1,142
• Tax benefit: $1,142

4. Running Costs Deduction:

• Electricity: $2,100
• Insurance: $1,400
• Registration: $800
• Servicing: $400
• Total: $4,700
• Business use (75%): $4,700 × 75% = $3,525
• Tax saving: $3,525 × 30% = $1,058
• Tax benefit: $1,058

Total Year 1 Tax Benefits:

GST Refund	$6,364
Depreciation Tax Saving	$3,580
Interest Tax Saving	$1,142
Running Costs Tax Saving	$1,058
TOTAL YEAR 1 BENEFIT	$12,144

Effective first year cost: $16,800 (repayments) - $12,144 (tax benefits) = $4,656

Over 5 years, total tax benefits would exceed $30,000, reducing the effective cost of the $70,000 EV to around $45,000 after all tax savings.

Record Keeping Requirements

To claim EV tax deductions, you must maintain comprehensive records for at least 5 years.

Essential Records to Keep:

Purchase and Finance Documents:

• Vehicle purchase invoice showing GST breakdown
• Chattel mortgage or lease agreement
• Proof of deposit payment
• Registration papers in business name

GST Records:

• Tax invoice from dealer/supplier
• BAS lodgements showing GST claim
• Bank statements showing GST refund received

Depreciation Records:

• Depreciation schedule showing calculations
• Asset register listing vehicle details
• Method chosen (diminishing value or prime cost)
• Effective life used (8 years for passenger vehicles)

Logbook (if using logbook method):

• 12-week continuous logbook showing all trips
• Date, odometer start/end, km travelled, purpose for each trip
• Business use percentage calculation
• New logbook every 5 years or if circumstances change significantly

Running Cost Records:

• Receipts for all charging/electricity costs
• Insurance premium invoices
• Registration renewal notices
• Servicing and maintenance receipts
• Tyre purchase receipts
• Any other vehicle-related expenses

Finance Records:

• Loan or lease statements showing repayments
• Annual interest summary from lender
• Evidence of balloon payment (if applicable)

Digital Record Keeping

The ATO accepts digital records. Consider using:

• Cloud accounting software (Xero, MYOB, QuickBooks) for expense tracking
• Digital logbook apps approved by ATO
• Receipt scanning apps for storing expense receipts
• Spreadsheets for manual tracking if preferred

What Happens If Records Are Inadequate?

If audited by the ATO and you cannot substantiate your claims:

• Deductions may be disallowed
• You may need to repay tax savings received
• Penalties and interest may apply
• Future claims may be scrutinised more closely

Keep detailed, accurate records from day one to protect your deductions.

Frequently Asked Questions

Can I claim GST on an electric vehicle purchase?

Yes, if your business is registered for GST, you can claim the GST component of an EV purchase. For a chattel mortgage, you claim it upfront in your next BAS. For a lease, you claim it progressively on each payment. This provides an immediate 1/11th (9.09%) refund of the GST-inclusive price.

How much depreciation can I claim on a business EV?

EVs can be depreciated using either diminishing value (200% declining balance) or prime cost (straight-line) methods. Typically, first year depreciation is 25-30% under diminishing value or 20% under prime cost. Small businesses may qualify for instant asset write-off if eligible.

Are EV running costs tax deductible?

Yes, all business EV running costs are tax deductible based on business use percentage. This includes electricity/charging costs, insurance, registration, servicing, tyres, and roadside assistance. Keep detailed records and logbooks to substantiate claims.

Can I claim interest on an EV loan as a tax deduction?

Yes, interest paid on business vehicle finance is fully tax deductible. For a chattel mortgage, you claim the interest component of each repayment. For a lease, the entire lease payment (including interest) is deductible as a business expense.

What is the instant asset write-off for electric vehicles?

Small businesses (aggregated turnover under $10 million) may be able to instantly deduct the cost of eligible assets. However, passenger vehicles are subject to the car limit ($69,674 for 2024-25). Check current ATO guidelines as instant asset write-off rules change regularly.

Do I need a logbook to claim EV tax deductions?

If claiming the logbook method (recommended for most businesses), you must maintain a logbook for at least 12 continuous weeks showing all vehicle use. This establishes your business use percentage which you can apply for up to 5 years before updating. Keep records of all expenses.

What records do I need to keep for EV tax deductions?

Keep: vehicle purchase invoice showing GST, finance agreements, logbook records, receipts for all running costs (electricity, servicing, insurance, etc), depreciation schedules, and BAS lodgements showing GST claims. Retain records for 5 years after claiming.

Conclusion

Electric vehicles offer Australian businesses exceptional tax advantages that significantly reduce the true cost of ownership. By understanding and correctly claiming GST refunds, depreciation deductions, interest expenses, and running costs, you can reduce your effective EV cost by 30-50% compared to the purchase price.

The key to maximising these benefits is proper structure from the start. Choose the right finance type (chattel mortgage or lease) based on your tax situation, maintain meticulous records, and work with professionals who understand business vehicle tax deductions.

Remember, tax laws can be complex and change regularly. Whilst this guide provides comprehensive information, always consult with a qualified accountant or tax adviser for advice specific to your business circumstances.

The combination of environmental benefits, lower running costs, and substantial tax deductions makes now an excellent time for Australian businesses to transition to electric vehicles.