Business Vehicle Depreciation Schedules: Cars, Utes, Vans, Trucks
How a depreciation schedule runs on a business car, ute, van or truck: ATO effective life caps, the two methods, the car limit and trade-ins.
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Vehicle Depreciation · Effective Life · Car Limit
How depreciation runs on a business car, ute, van or truck: the ATO's effective life caps, the two methods, the car limit, the write-off and pool, and what a trade-in does to the schedule.
Quick Answer
A business vehicle depreciation schedule records how much of a car, ute, van or truck's cost you claim each year, set by the vehicle's effective life, the method you choose and how much of its use is for business. The ATO caps the effective life of most utes, vans and trucks, limits what you can depreciate on a passenger car, and treats a sale or trade-in as its own tax event. The general idea sits in our depreciation schedule glossary entry; this insight walks through how the schedule runs for each kind of vehicle you might finance through vehicle finance.
Also called: vehicle depreciation schedule, motor vehicle depreciation schedule, car depreciation schedule. The last applies to cars only, where the car limit caps the cost you can depreciate.
What is a business vehicle depreciation schedule?
A business vehicle depreciation schedule is a year-by-year record of how much of a vehicle's cost you claim as a tax deduction while it loses value, from the year you first use it to the year you sell or trade it. Most business owners think the depreciation schedule is the accountant's job until a lender reads it. Then the same lines that reduced your tax become part of how your income is assessed.
A vehicle is a depreciating asset, so its cost is claimed over time rather than all at once (unless a write-off applies). The general meaning of the term, who prepares one and whether it is the same as a write-off are covered in the depreciation schedule glossary entry linked above. For a vehicle, each line of the schedule usually carries:
- Cost and start date. What you paid and the day the vehicle was first used or installed ready for use in the business.
- Effective life. How many years the vehicle is expected to earn income, which sets the rate.
- Method. Prime cost or diminishing value.
- Business use. The share of use that is for business, usually backed by a logbook.
- Claim and closing value. The deduction for the year and the written-down value carried into the next one.
From the underwriter's seat, the schedule matters because lenders add depreciation back when they read your profit. Depreciation is a non-cash expense: it lowers taxable income without money leaving the account, so many lenders treat it as income available to meet repayments, though how much they add back varies by lender. That is one reason a large vehicle claim does not have to sink a later application. The paperwork lenders ask for sits in the tradie loan pack and the truckie loan pack, and the wider picture of financing a business vehicle is in our business vehicle finance guide.
What effective life applies to utes, vans and trucks?
Utes, vans and light trucks built to carry one tonne or more, and trucks over 3.5 tonnes GVM, carry a capped effective life of 7.5 years, at the time of writing, and trailers over 4.5 tonnes GVM carry a capped life of 10 years. A ute that carries less than a tonne is a car for tax and is not on the capped list. The Commissioner of Taxation publishes a longer effective life for each capped vehicle, but the law caps it. According to the ATO's page on statutory caps for buses, light commercial vehicles, trucks and trailers, if you use the Commissioner's determination you must use the shorter capped life. You may instead work out your own effective life, which your accountant would need to support.
| Vehicle | Commissioner's effective life | Capped effective life |
|---|---|---|
| Light commercial vehicle (carrying capacity of one tonne or more, GVM of 3.5 tonnes or less: utes, vans, light trucks) | 12 years | 7.5 years |
| Truck over 3.5 tonnes GVM | 15 years | 7.5 years |
| Trailer over 4.5 tonnes GVM | 15 years | 10 years |
| Bus over 3.5 tonnes GVM | 15 years | 7.5 years |
Sources: Australian Taxation Office, Effective life of buses, light commercial vehicles, minibuses, trucks and truck trailers, last updated 26 June 2025. Read 13 October 2026.
Two points trip people up. First, these weight bands are tax bands, not finance tiers: the ATO draws its line at 3.5 tonnes GVM for trucks and light commercial vehicles, while finance and road rules usually turn on 4.5 tonnes. Second, passenger cars, including utes that carry less than a tonne, are not on the capped list at all. A car's effective life comes from the Commissioner's determination for cars, and your accountant will confirm the figure that applies to yours.
Diminishing value or prime cost: which suits a business vehicle?
Diminishing value suits a business that wants larger deductions in the first years of a vehicle's life, and prime cost suits one that wants the same deduction every year. Both methods use the same effective life. The difference is timing: diminishing value claims more early and less later, while prime cost spreads the cost evenly.
How is a prime cost claim worked out?
A prime cost claim is worked out on the vehicle's original cost every year. Per the ATO, the formula is cost multiplied by the days held in the year divided by 365, multiplied by 100 per cent divided by the effective life.
How is a diminishing value claim worked out?
A diminishing value claim is worked out on the vehicle's remaining value, so it shrinks each year. For assets first held on or after 10 May 2006, the ATO formula is base value multiplied by the days held divided by 365, multiplied by 200 per cent divided by the effective life. The base value is the cost in year one, then the value left after earlier claims.
Illustrative example only: a $60,000 light commercial ute rated to carry one tonne or more, held all year, 7.5 year capped life, 100 per cent business use, no instant asset write-off or pool.
| Year | Prime cost claim | Diminishing value claim |
|---|---|---|
| Year 1 | $8,000 | $16,000 |
| Year 2 | $8,000 | about $11,733 |
| Year 3 | $8,000 | about $8,604 |
The figures come straight from the ATO formulas above and are not a forecast for any real vehicle. Your own numbers depend on the price, the date the vehicle starts work, the business use share and whether a write-off or pool applies.
Faster: diminishing value
- Larger deduction in the first year or two
- Suits a vehicle that loses value quickly early on
- Lowers taxable profit most when cash is tightest after purchase
Slower: prime cost
- Smaller deduction in the first year
- Same claim each year, which is easier to forecast
- Leaves more of the cost to claim in later years
Which method you should pick is a question for your accountant. What a lender sees is that the deduction changes from year to year, which is why the add-back matters more than the method.
How does the car limit cap depreciation on a business car?
The car limit caps the cost you can depreciate on a passenger car, so any amount you pay above it is not depreciated. Per the ATO, the car limit for passenger vehicles is $69,674 for 2025-26 and $69,883 for 2026-27, at the time of writing, as set out in its car thresholds from 1 July notice. If you buy a car for more than the limit, the schedule starts from the limit rather than the price.
The ATO defines a car for this rule as a vehicle designed to carry a load of less than one tonne and fewer than nine passengers. Many utes and vans fall outside that definition because they carry a tonne or more, which is why they sit on the capped effective life list instead. Whether your particular ute counts as a car is worked through in our post on how lenders class a ute, van or light truck.
One more rule: if you claim a car's running costs using the cents per kilometre method, you cannot also depreciate it. The cents per kilometre rate already includes depreciation, so the schedule only exists for cars claimed on actual costs.
Where do the instant asset write-off and the small business pool fit in the schedule?
The instant asset write-off and the small business pool replace the normal schedule for businesses that use simpler depreciation. They are available to businesses with aggregated turnover under $10 million. The write-off limit is $20,000, per the ATO at the time of writing, for assets first used or installed ready for use on or after 1 July 2023, and the $20,000 threshold is permanent from 1 July 2026. An asset costing less than that can be claimed in full in the year it starts work.
Most work vehicles cost more than the limit, so under simpler depreciation they go into the general small business pool instead. The pool is depreciated at 15 per cent in the first year and 30 per cent after, at the time of writing, whatever the vehicle's effective life. That means a ute in the pool does not use the 7.5 year cap at all. The ATO also says the rule that locks a business out of simpler depreciation for five years after leaving it is suspended until 30 June 2027, at the time of writing.
Trucks are where the gap between the write-off and the price is widest. The truck shortfall and how the pool works for a prime mover are covered in our post on chattel mortgage truck depreciation and the write-off, and the loss rules around a financed asset in our loss carry back insight.
How does private use change vehicle depreciation?
Private use reduces vehicle depreciation in proportion: you can only claim the share of each year's decline in value that matches the vehicle's business use. If a ute is used for business three days in four, roughly three quarters of the schedule's claim is deductible. The share is your business use percentage, and the evidence for it is usually a logbook.
The schedule should show the full decline in value and the business share separately, so the claim can be adjusted if use changes. A vehicle that moves from mostly work to mostly family use partway through its life changes the claim from that year on.
Fringe benefits tax is a separate question that only arises where a company or trust provides the vehicle to an employee, including a company director; it does not apply to a sole trader's own vehicle, and the ATO exempts some utes and vans where private use is limited, so ask your accountant whether it applies to yours.
Does a chattel mortgage, lease or novated lease change who claims depreciation?
The finance choice changes who claims depreciation because ownership decides it: whoever owns the vehicle claims the decline in value. The structure you pick through vehicle finance therefore shapes the schedule from day one.
- Chattel mortgage. You own the vehicle from settlement and the lender takes security over it, so you claim depreciation and the business share of the interest. How the product works is in our chattel mortgage guide and the chattel mortgage glossary entry.
- Finance or operating lease. The lessor owns the vehicle and claims its depreciation. You generally claim the business share of the lease payments instead, so there is no depreciation schedule on your side.
- Novated lease. A novated lease is an arrangement between an employee, their employer and a lessor, usually paid through salary packaging. It is not a way for a business owner to finance their own work vehicle, and the tax treatment sits with the employer's adviser.
A balloon does not move when depreciation starts. The balloon is a finance term that sets the last payment; depreciation starts when the vehicle is first used in the business, whatever the balloon. How balloons are set is in our balloon payments guide, and the balloon, GST and depreciation picture on a truck is in our truck chattel mortgage post. The depreciation question tends to surface when a business compares a chattel mortgage with a lease, and that comparison belongs with your accountant before the finance is signed.
What happens to the schedule when you sell or trade in the vehicle?
Selling or trading in a vehicle ends its schedule, because the ATO treats a sale or trade-in as a balancing adjustment event. The price you receive is compared with the vehicle's written-down value on the schedule. If you receive more, the difference is generally assessable income; if you receive less, the difference is generally deductible, with special rules for cars caught by the car limit.
A trade-in is two tax transactions, not one. You dispose of the old vehicle at its trade-in value and buy the new one at its full price, even though only the difference changes hands at the dealer. The new vehicle starts its own schedule from its full cost.
Vehicles in the small business pool work differently. The sale proceeds come off the pool's balance, and if the pool's closing balance falls below zero, that amount is assessable income, per the ATO. GST registered businesses also need to account for GST on the sale or trade-in value. Before a trade-in:
- Pull the current schedule. Ask your accountant for the vehicle's written-down value or the pool balance.
- Get the trade-in figure in writing. The dealer's offer is the number the tax adjustment is based on.
- Check the timing. A trade-in late in the financial year lands the adjustment in that year's return.
- Line up the new finance. The payout on any existing loan and the new vehicle's finance settle together, so check eligibility early.
A balancing adjustment can make one year's profit look unusually high or low. Lenders reading two years of returns will often ask what caused the swing, so a short note from your accountant saves a round of questions.
A business vehicle depreciation schedule tracks a vehicle's decline in value from first use to sale. Most utes, vans and trucks carry a capped effective life, passenger cars (including utes that carry under a tonne) are limited by the car limit, and businesses using simpler depreciation may write off cheaper assets or pool dearer ones. Ownership decides who claims, private use shrinks the claim, and a sale or trade-in triggers a balancing adjustment. Lenders add depreciation back when they read your profit, so the schedule shapes your borrowing as well as your tax.
Key takeaway: settle the method, the business use share and the finance structure with your accountant before you buy, and keep the schedule ready for your broker.Frequently Asked Questions
The depreciation schedule for vehicles is the year-by-year record of how much of a business vehicle's cost is claimed as it loses value. Each line shows the cost, effective life, method, business use share and closing value. For light commercial vehicles and trucks the ATO caps the effective life, and for passenger cars the car limit caps the cost. The general term is explained in our depreciation schedule glossary entry.
Depreciation on a business vehicle works by spreading the vehicle's cost over its effective life as a tax deduction, using either the prime cost or diminishing value method. The claim is reduced to the business use share, and it belongs to whoever owns the vehicle. A vehicle is a depreciating asset, so unless a write-off applies, the cost is claimed over several years.
The ATO depreciation rate for vehicles is not one fixed number, because it follows from the effective life and the method you use. On the 7.5 year capped life for light commercial vehicles and trucks, prime cost works out at approximately 13.3 per cent of cost a year and diminishing value at approximately 26.7 per cent of the remaining value, at the time of writing. Vehicles in the small business pool use the pool rates instead, as explained with the instant asset write-off rules.
When you trade in a work vehicle, its depreciation stops and the trade-in becomes a balancing adjustment event. The trade-in value is compared with the written-down value, and the difference is generally assessable or deductible; for pooled vehicles the value comes off the pool balance. The new vehicle starts its own schedule from its full cost, and the finance side is covered in our business vehicle finance guide.
Many lenders will add back vehicle depreciation when they read your profit, because it is a non-cash expense that lowers taxable income without money leaving the business. How much is added back, and whether interest on the existing vehicle loan is also considered, varies by lender. It feeds into serviceability, so ask your broker how a given lender treats it.
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