Doctors: Slash Taxes with Car Deductions!

If you're a doctor and you use your own car for work, you'll want to keep track of your trips for a 12-week period. During this time, you'll need to log every trip you make, and note whether it's for work or personal use.  

At the end of the 12 weeks, calculate the total kilometers you've driven, and then figure out what portion was for work. To do this, divide the kilometers driven for work by the total kilometers, and you'll get what's called your "professional use percentage."

Once you know that percentage, you can apply it to the costs of running your car, like fuel, registration, insurance, repairs, and even depreciation. For many doctors, the daily commute from home to work is considered a work-related trip, especially since you might need to transport medical equipment back and forth.

Most doctors end up with a professional use percentage of 90% or more, which means they can claim a tax deduction for that portion of the costs associated with their car. This also includes depreciation, especially in the first few years of owning the car. And the good news is, this deduction is available to all doctors, whether you're self-employed, an employee, or working through a company or trust.

Tax Deductions for Multiple Cars

If you're a doctor in private practice and work through a company or trust, you can claim tax deductions for the running costs of multiple cars. There’s no limit to the number of cars that can be made available for your private use, as long as it's through the company or trust.

However, since these cars are used for personal purposes, they’re considered a fringe benefit, which means the company or trust has to take up a non-deductible private usage component. Of pay fringe benefits tax (FBT). To help reduce the FBT, you, as the doctor, can reimburse the company or trust for the portion of the car's expenses used for personal use during the FBT year.

The amount you need to reimburse depends on a few factors. The more expensive the car, the higher the FBT. On the other hand, the more the car is driven for work purposes, the lower the FBT. In other words, the further the car is driven, the less tax you'll have to pay.

Luxury Cars and Tax Deductions

In Australia, there's a limit to how much of a car’s value you can claim for tax deductions, known as the "luxury car limit." Right now, that limit is set at $69,674. What this means is if you buy a car for more than $69,674, you can only claim depreciation on up to $69,674 of its value.

If you're registered for GST, there's also a cap on how much GST you can claim back. You can only claim the first $6,334 (less private usage component)  of the GST paid as an input tax credit (which is 1/11th of the purchase price).

Over the years, we’ve come to realize that Oscar Wilde was onto something when it comes to cars. He famously said accountants know the cost of everything but the value of nothing. It’s often the case when we tell clients that spending more than $69,674 on a car won’t bring much of a tax benefit, they remind us of Wilde’s wisdom!

Used Cars and Tax Deductions

If you're a doctor or a practice entity, you can depreciate the full purchase price of a second-hand car, just like you would for a new one. The luxury car limit applies to the actual amount you pay for the car. So, if you buy a second-hand car for $69,674, you can depreciate that full amount over the car's working life.

In practice, this is often a great deal for doctor. For example, if you buy a late-model second-hand European car, you can fully depreciate the entire price, even though the car would have cost well over $69,674 if it were brand new.

Cars and Doctors Multiple Cars

Cars are a big expense, so it’s no surprise that car-related questions come up in almost every client meeting. What car should you buy? How much should you spend? Who should own it? And how much can you claim for tax? What about the second, third, or even fourth car? And for those looking to save on petrol and avoid traffic jams, how about a motorbike?

The good news is that the tax laws are pretty generous when it comes to car expenses for doctors, and you can make some great tax claims here. Let’s start with the basics: the luxury car depreciation limit. Back in the ‘80s, Treasurer Keating introduced a cap on tax benefits for cars at the higher end of the price range. Currently, the cap is $69,674 for the year ending June 30, 2025 This means you can’t claim tax relief for interest or the capital cost on any car that costs more than $ 69,674. 

A lot of car manufacturers price their models around this limit, knowing about the tax aversion to spending more than this amount. But we tend to recommend second-hand cars. There are lots of great deals on the second-hand market, with many top-quality cars that are only one or two years old priced at or around this limit. It’s a smart move: let someone else take the big hit when the car leaves the dealership, and then enjoy reliable driving in a car that’s still essentially like new.

Once you’ve bought the car, it’s time to grab that logbook and start recording your trips for the next 12 weeks. The key thing to remember is that for most doctors, the commute from home to work counts as business travel—especially if you're transporting bulky medical equipment. If your accountant says otherwise, point them to the AAT Case 9235 1994 27 ATR 127, where a doctors home-to-work travel was treated as deductible business travel due to the need to carry bulky medical equipment. It’s clear-cut and something the ATO accepts.

So, what counts as “bulky medical equipment”? It depends on the situation, but usually things like a doctors bag, a laptop, and patient files should be enough to make your commute business-related. If you're worried about it, though, you can always invest in a large fishing box for your emergency medical equipment—just to be safe. Plus, you’ll be ready for any medical emergency!

When it comes to a second car—like a troop carrier that’s never used for business—you can still get some good tax deductions. If the car is owned by your practice company or a service trust, it can be provided to you or your spouse as a fringe benefit under the "statutory" method. This can create a tax deduction of at least 50% of the car’s operating costs, including depreciation and interest on any loan used to buy the car.

And yes, motorbikes are considered cars for tax purposes! So, if you’re eyeing a Harley Davidson, you can treat it as a deductible fringe benefit, too. Happy motoring!

Tash Tolevsky is a Specialist Medical Accountant. She provides expert guidance on tax strategies, building and protecting wealth . If you’re interested in discussing how we can help you,  please book a complimentary consultation by clicking here.

Disclaimer: This article contains general information only . It is not designed to be a substitute for professional advice and does not take into account your individual circumstances, so please check with us before implementing this strategy to make sure it is suitable.