Car Loan Tax Deductible? Find Out Fast (2026 Guide)

Are you considering purchasing a vehicle and wondering if your car loan could be tax-deductible? As a savvy Australian taxpayer, you're not alone in seeking ways to maximise your tax return. Understanding the nuances of tax deductions related to car loans can potentially save you money and make your investment more cost-effective. Let's dive into the details to see how you can make the most of your car loan.

Understanding Tax Deductibility of Car Loans

In Australia, whether a car loan is tax-deductible largely depends on how the vehicle is used. If you use the car for business purposes, you may be able to claim deductions on the interest paid on the loan and depreciation of the vehicle. However, if the car is used solely for personal use, these deductions are not applicable.

The Australian Taxation Office (ATO) allows for deductions if the vehicle is used to generate assessable income. This could include using your car for deliveries, client meetings, or any other business-related activities. It's essential to keep a logbook and records to substantiate your claims.

Current Market Rates and Eligibility

As of 2026, the interest rates for car loans in Australia typically range from 6.49% to 12%, depending on factors such as your credit score, the loan term, and the lender's policies. With over 83 lenders, Esteb and Co can help you find competitive rates that suit your financial situation.

Eligibility for car loan tax deductions requires the vehicle to be primarily used for business purposes. Sole traders, companies, and partnerships often claim these deductions, but the specifics can vary. The general rule is that a portion of the loan interest can be deducted in proportion to the business use of the vehicle.

Car Use Type	Tax Deductible?	Details
Business Use	Yes	Interest on loan and depreciation deductible
Personal Use	No	No deductions allowed
Mixed Use	Partial	Deductible based on percentage of business use

Steps to Claim Car Loan Deductions

Here’s how you can practically claim tax deductions on your car loan:

1. Determine Business Use Percentage: Keep a logbook for 12 continuous weeks to calculate the business use percentage of your vehicle.
2. Calculate Deductible Amount: Use the business use percentage to calculate the deductible portion of your car loan interest and depreciation.
3. Maintain Accurate Records: Keep all loan statements, logbooks, and receipts for expenses related to your vehicle.
4. Complete Your Tax Return: Use the ATO guidelines to report your deductions accurately on your tax return.
5. Consult a Tax Professional: Consider consulting a tax accountant to ensure you’re claiming all eligible deductions and complying with ATO regulations.

Expert Tips and Considerations

• Keep Detailed Records: This cannot be overstated. Detailed records are your best ally in case of an audit.
• Consider a Novated Lease: For employees, a novated lease might offer tax advantages as it allows payments to be made from pre-tax income.
• Review Deductions Annually: Your business use percentage might change each year, so regularly review your deductions.
• Explore Lender Options: With Esteb and Co's access to 83+ lenders, ensure you’re getting the best deal for your financial needs.
• Understand Depreciation: Depreciation can be claimed over several years, so understand how it affects your long-term tax strategy.

Frequently Asked Questions

Can I claim a car loan on my personal vehicle if I occasionally use it for work?
If you use your personal vehicle for work purposes, you may claim deductions for the business use portion. Keep a logbook to substantiate your claims.

Is the entire car loan interest deductible?
No, only the portion of interest that corresponds to the business use of the vehicle is deductible.

What is the logbook method?
The logbook method requires you to keep a detailed record of your car’s use for a 12-week period to determine the business use percentage.

Can I claim deductions without a logbook?
While you can use the cents per kilometre method for claiming vehicle costs, it does not cover loan interest or depreciation.

What if my business use percentage changes?
You should update your logbook every five years or sooner if the business use of your vehicle changes significantly.

Can Esteb and Co help me find a tax-efficient car loan?
Yes, with access to over 83 lenders, Esteb and Co can assist in finding a car loan that aligns with your financial and tax strategies.