A simple guide to business vehicle depreciation

5 mins read

Vehicle depreciation can be a complicated subject to get your head around. But for small businesses—it’s essential.

There’s a general saying that a vehicle starts to depreciate the moment it leaves a dealership. So being smart about what you’re buying can be as important as when you sell it or trade it in. But, what exactly is depreciation? How does it work? And how do you claim it?

Let’s find out.

What is depreciation and what influences it?

Simply put, depreciation is how much value a vehicle loses over its lifetime. There are many factors that determine depreciation but firstly, objective quality and perceived quality come into play. Quality refers to the brand perception and overall car reliability.

Aside from quality, the following factors determine the rate of vehicle depreciation.

Make and model

Buying a vehicle from a brand with an excellent reputation can result in a car that holds its value better. As Australia’s leading car brand, there are many advantages to owning a Toyota. Our models are generally in high demand, which increases their market value and ensures depreciation is lower.

How well it’s maintained

The better you maintain your vehicle, the slower it depreciates, especially if records of its maintenance are kept. So ensure you regularly service your vehicle and maintain its appearance.

The interior and exterior condition

Keeping a clean car can go a long way as well-maintained vehicles are always more attractive to potential buyers.


Sometimes added modifications such as tinted windows, leather interior and accessories can also improve a car's value.

Age of the vehicle

In most cases, the older a car is, the less value it has. Physical appearance and mileage of a vehicle can also effect the car’s value.


Fuel-efficient cars are generally cost-effective. In comparison to others, they tend to have better long-term resale value, so it’s worthwhile considering vehicles that can drive longer on lower amounts of fuel—especially Hybrid options.

Demand of vehicle

Much like the car brand you choose, the car model and style will also affect resale value, so consider a business vehicle that’s always in demand. Toyota HiLux for example, is one of the top two best selling models in Australia.

Can you calculate a tax deduction for vehicle depreciation?

Yes, you can. Depreciation follows a general formula using either the prime cost method or the diminishing value method. Both calculation methods however share the same elements: number of days held, cost or base value of the vehicle and the effective life of the vehicle.

To learn more about each method, please refer to the following ATO (Australian Taxation Office) page.

The most important part to understand about vehicle depreciation is that it can lead to tax deductions. Any business owner who uses a vehicle as part of their commercial operation is entitled to claim back the cost as a deduction when tax time arrives. This is important, especially if managing cash flow is a priority for your business.

To learn more about each method, please refer to the following ATO (Australian Taxation Office) page.

How do you claim a tax deduction for vehicle depreciation?

In Australia, you can choose to claim business vehicle depreciation using either general depreciation or simplified depreciation rules.

Simplified depreciation rules

If you have a small business with an aggregate turnover of less than $10 million, you can use the simplified depreciation rules. This includes:

General depreciation rules

Under this rule, you can claim deductions on your business vehicle using either the prime cost method or the diminishing value method we discussed earlier. ATO's general depreciation rules are used to work out how much you can claim for vehicles if they fall over the simplified depreciation threshold i.e. if your business has an aggregate turnover of more than $10 million.

General depreciation rules also require you to determine the effective life of a vehicle. To work this out, you can either use the ATO determination model which is a standardised rate set by the ATO and published annually in taxation rulings or you can make a self-assessed determination based on the features of the vehicle and the way it’s used.

Making a decision

Vehicle depreciation is certainly no simple subject. But having some understanding of it can make purchasing your next business vehicle a little less stressful. As not all businesses are the same, at Toyota we always advise that it's best to speak to your accountant before making any financial decisions.

Want to learn more about Toyota vehicles?

Arrange your free consultation with one of our Toyota Dealers to help you make the best choice for your fleet needs.


This information provided is of a general nature and for information only. Nothing in this article constitutes or should be considered to constitute legal, taxation or financial advice. Before making a decision about any of the products and services featured in this article, you should consult with your own independent legal, taxation and financial advisors, who can advise you about your personal circumstances.

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