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KEY POINTS
- Luxury car tax (LCT) is charged on vehicles valued over a threshold set by the Australian Taxation Office ATO).
- The cost of LCT may vary depending on the value of the car you’re buying, the LCT threshold, and other factors.
- Exemptions and concessions to LCT are available to those who fulfil the ATO’s eligibility criteria.
What is the luxury car tax?
The luxury car tax (LCT) is a tax on cars with a total value above a threshold set by the Australian Taxation Office (ATO). It applies to the sales of cars that are two years old or less, meaning they were either imported into Australia or manufactured here less than two years ago.
For calculating the LCT, a car’s total value is determined by its retail price. This includes GST, any customs duty, dealer delivery charges, standard and statutory warranties, and the costs of extra items (such as modifications) applied to the car before delivery.
Because the ATO considers any vehicle valued above the LCT threshold a ‘luxury car’, it isn’t just sports cars or high-performance vehicles that are affected by the luxury car tax.
Who pays the luxury car tax?
Car dealerships that sell or import luxury cars pay the LCT, as do individuals who import luxury cars. Dealers will generally pass the cost of the tax on to the buyer and include it in the vehicle’s total purchase price.
How much is the luxury car tax rate?
According to the ATO, the luxury car tax is set at 33% of the value of the vehicle above the luxury car threshold.
What costs are not considered in calculating the luxury car tax?
Not all aspects of a car’s sale price attract LCT. In addition to LCT itself, the ATO says the following are among the costs not factored into a vehicle’s value for LCT purposes when it is sold:
- other Australian taxes, fees or charges (aside from GST and customs duty), such as stamp duty and registration costs
- compulsory third party (CTP) insurance
- extended warranties
- costs of financing the purchase of the car (i.e. a car loan)
- service plan costs
What is the luxury car tax threshold?
For the 2025/26 financial year, the thresholds will be $91,387 for fuel-efficient vehicles and $80,657 for other vehicles. These changes are based on a rise in the consumer price index (CPI), a key measure of inflation.
From 1 July 2025, the ATO defines a fuel-efficient car as a vehicle that has a fuel consumption that does not exceed 3.5 litres per 100 kilometres. This may include electric vehicles, hybrids and more.
How has the luxury car tax threshold changed over time?
The luxury car tax (LCT) threshold has changed over time, with the thresholds for both fuel-efficient vehicles and other vehicles increasing. For example, the fuel-efficient threshold rose by more than $5,000 for the 2023/24 financial year. Historical LCT threshold amounts can be found on the ATO website.
How is luxury car tax calculated in Australia?
To work out the amount of luxury car tax payable, the ATO applies this formula:
(LCT value – LCT threshold) × 10 ÷ 11 × 33%
Here’s a hypothetical example for the 2024/25 financial year from the ATO that explains how these calculations could work in practice:
Matty Bee Motors (MBM) sells a car (not qualifying as fuel efficient) worth $88,000 including GST. The LCT value of the car is more than the LCT threshold ($80,567 for the 2025–26 financial year) so MBM must pay LCT on the sale of the car.
To work out the amount of LCT:
(LCT value − LCT threshold) × 10 ÷ 11 × 33%
($88,000 − $80,567) × 10 ÷ 11 × 33%
$7,433× 10 ÷ 11 × 33%
= $2,229
MBM charges the customer $90,229 ($88,000 including GST plus $2,229 LCT) for the car, excluding stamp duty, CTPI, registration and other charges.
MBM reports and pays $2,229 LCT on their next BAS.
Why is there a luxury car tax?
The luxury car tax was introduced hot on the heels of the GST (goods and services tax) back in 2001 as a federal government initiative designed to protect the domestic Australian car manufacturing industry against imports. Prior to this, Australia had a long history of taxing expensive cars, dating back to the wholesale sales tax (WST), a precursor to the GST, which saw luxury cars taxed at a higher rate than non-luxury ones.
In an inquiry into Australia’s Automotive Manufacturing Industry, found that the LCT was “designed to maintain this higher rate of taxation, so that the price of luxury cars did not fall dramatically”. While protecting Australia’s local manufacturing industry was a likely motivation behind this, since the demise of the Australian car manufacturing industry there have been calls from industry for the tax to be scrapped.
Are there any exemptions from the luxury car tax?
According to the ATO, the luxury car tax doesn’t apply if the buyer has an ABN and will use the car for specific purposes or the car is:
- manufactured in Australia more than two years before the sale
- imported to Australia more than two years before the sale
- exported as a GST-free export
- registered for use as an emergency vehicle (or is intended to be one, such as an ambulance, firefighting vehicle, police car, or search and rescue vehicle)
- a motor home or campervan
- a commercial vehicle designed mainly for carrying goods and not passengers.
The ATO notes the LCT also doesn’t apply to any modifications made for people with a disability, nor to when an endorsed public institution (such as a museum, gallery or library that is registered for GST and endorsed as a deductible gift recipient) either:
- imports a car as a work of art or collectors piece for the sole purpose of public display
- sells such a car to another endorsed public institution that also intends to use it solely for public display.
There may be other ways to reduce the amount of LCT you have to pay, depending on your circumstances. For instance, the ATO says workers in certain industries like primary industries and tourism can claim LCT refunds on cars they use for work.
Do you have to pay luxury car tax on a used car?
The ATO states luxury car tax is only applied to eligible vehicles under two years old, starting from the date they were either imported into Australia or manufactured here. If the car is sold for a second time within those first two years, it will only attract LCT if it has increased in value. Given most cars depreciate over time, this is a possible but unlikely scenario.
This means that if your car hasn’t increased in value and you can prove the LCT was already paid on it, you may be able to avoid paying the LCT even if it is less than two years old.
Cover image source: EZ-Stock Studio/Shutterstock.com
