What is the luxury car tax?
The luxury car tax (LCT) is a tax on cars with a total value above a threshold published by the Australian Taxation Office (ATO) each financial year.
This financial year’s (2026 - 2027) LCT is as shown below:
FY2026 - 2027 LCT | |
|---|---|
LCT rate | 33% of the car’s value |
LCT total value | $91,661 for fuel-efficient vehicles $80,809 for all other vehicles. |
How is the luxury car tax calculated?
Luxury car tax threshold
Changes to the LCT threshold are based on a rise in the consumer price index (CPI), a key measure of inflation.
The LCT threshold has changed over time, with the thresholds for both fuel-efficient vehicles and other vehicles increasing. Historical LCT threshold amounts can be found on the ATO website.
Luxury car total value
A luxury car’s value for LCT purposes is generally its retail price, including:
- Goods and services tax (GST)
- Customs duty
- Delivery charges (from dealer)
- Standard and statutory warranties
- Modifications (excluding disability related modifications).
However, the costs below are not factored into a vehicle’s total value:
- Other Australian taxes, fees or charges (aside from GST and customs duty), such as stamp duty and registration costs
- Extended warranties
- Costs of financing the purchase of the car (i.e. a car loan)
- Service plan costs.
Who pays the luxury car tax?
Car dealerships that sell or import luxury cars pay the LCT, as do individuals who import them.
Dealers generally pass the cost of the tax on to the buyer and include it in the vehicle’s total purchase price.
When does the luxury car tax apply?
The LCT will apply to the sale or import of a car (not just sports cars or high-performance vehicles) if:
- It’s sold within two years of local manufacture or importation into Australia.
- It's designed to carry a load of less than two tonnes and fewer than nine passengers.
However, you could be exempt from paying the LCT if the car is:
- Manufactured in Australia more than two years before the sale
- Imported 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)
- A motor home or campervan
- A commercial vehicle designed mainly for carrying goods and not passengers.
The LCT also doesn’t apply if an endorsed public institution that’s registered for GST and endorsed as a deductible gift recipient either:
- Imports a car as an art or collector's piece solely for displaying in public
- Sells it to another endorsed public institution whose intent is to display it publicly.
Keep in mind that there are other ways to reduce the amount of LCT you have to pay. For instance, the ATO says GST-registered primary producers and tourism operators can claim a partial for eligible 4WD or AWD vehicles, up to $10,000 a year.
How is luxury car tax calculated in Australia?
To work out the amount of LCT payable, the ATO uses this formula:
(LCT value – LCT threshold) × 10 ÷ 11 × 33%
Here’s an example for the 2026/27 financial year from the ATO that explains how these calculations could work in practice:
- Matty Bee Motors (MBM) sells a car (not qualified as fuel efficient) worth $88,000 including GST.
- The LCT value of the car is more than the LCT threshold ($80,809)
- 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 − $80,809) × 10 ÷ 11 × 33%
$7,191× 10 ÷ 11 × 33%
= $2,157.30
MBM charges the customer $90,157.30 ($88,000 including GST plus $2,157.30 LCT) for the car, excluding:
- Stamp duty
- CTP insurance
- Registration
- Other charges.
MBM reports and pays $2,157.30 LCT on their next Business Activity Statement (BAS).
Since the demise of the Australian car manufacturing industry, there have been calls from industry for the tax to be scrapped.
How do I avoid paying the luxury car tax?
There are many ways to avoid incurring the LCT, such as:
- Consider a fuel-efficient vehicle: Fuel-efficient vehicles enjoy a much higher luxury tax-free threshold.
- Buy a used car: Buy a used car that’s older than two years or was imported more than two years ago.
- Avoid dealer-fitted extras at purchase: Only buy and install optional extras after purchasing the vehicle to keep the list price below the threshold.
- Buy a commercial vehicle: Vehicles designed to carry a load of two tonnes or more, or nine or more passengers, aren’t subject to LCT.
FAQs about the luxury car tax
Why is there a luxury car tax?
The luxury car tax was introduced in 2000 as a federal government initiative designed to protect the domestic Australian car manufacturing industry against imports.
Before 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.
Do you have to pay luxury car tax on a used car?
A used car will only attract LCT if:
- If it’s under two years old
- If it increases in value (only if it is sold for a second time within those two years).
Given most cars depreciate over time, this is an unlikely scenario.
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.
