Luxury car tax, or LCT for short, can add thousands of dollars to the price of your new ride.
Find out more about this tax rule from when LCT applies to how to avoid luxury car tax in Australia.
What is the Luxury Car Tax?
The luxury car tax is payable on cars whose value exceeds the thresholds set by the ATO. It applies to sales of cars that are under two years old, i.e. vehicles that have been imported to or manufactured in the country in the last two years.
The luxury car tax rate is currently at 33% on the value of the car above the luxury car threshold, which is set by the ATO and changes every year to account for inflation.
The LCT is typically paid by businesses that sell or import luxury cars, such as retail and wholesale car dealerships, or individuals who import the vehicles themselves.
Even though it’s the seller that pays the LCT on an imported car, you as the average car buyer should also be aware of the levy and how it is calculated. Anything that a car dealer pays on the car is typically included in the final price, so the higher the LCT charge, the higher the price of the vehicle offered by the dealer.
Luxury Car Tax Thresholds
For the 2022/23 financial year, the threshold is $84,916 for fuel-efficient cars (defined as cars that have fuel consumption lower than 7 litres per 100 kilometres) and $71,849 for other vehicles.
The threshold for fuel-efficient vehicles has always been higher in an effort to encourage more people to buy energy-efficient and eco-friendly cars.
The LCT thresholds are as follows:
|Financial Year||Threshold for fuel-efficient vehicles||Threshold for other vehicles|
The luxury car threshold applies to the year the car was imported, not manufactured. So, if you are buying a 2021 model, but you are importing it during the current 2022/23 financial year, you should use the thresholds for that year.
The LCT was introduced in 2000 along with the Goods and Services Tax (GST) as a way to discourage Australian residents from buying imported vehicles. Since then, though, domestic car production has shut down, causing car imports to increase by 34% in 2021 alone and filling the government’s coffers with almost a billion dollar in tax each year. This combined with the fact that dealerships pay LCT on top of GST has led to renewed calls from the automotive industry for the tax to be scrapped.
Does the luxury car tax in Australia only apply to luxury cars?
Since luxury cars are defined as vehicles whose value is above the LCT threshold, the LCT applies to vehicles that are not typically associated with a luxury brand.
Actually, the AADA says that the vehicle that most commonly attracts this tax is the Toyota LandCruiser, the model of choice for families and farmers. At the same time, some traditional luxury brands like BMW and Mercedes, which have become more accessible thanks to Aussies’ increased buying power, might avoid the tax altogether.
The same goes for EVs. Electric vehicles like Tesla may not be considered traditional luxury brands, but because of their price, they fall into that category. Manufacturers and dealers, as well as consumers, have argued that applying LCT on EVs actually discourages people from going green and buying battery-power cars. EVs currently make up only 1.95% of the Australian car market.
Luxury Car Tax Exemptions
An introduction of a government levy always begs the question: Can I get out of paying it?
The short answer here is no, you can’t avoid the luxury car tax in Australia. If the LCT applies, you must pay it. Luckily, there are a few situations when the LCT does not apply.
As mentioned above the LCT applies for sales of cars that are two years old or less, meaning it is waived for vehicles that have been imported to Australia or manufactured in the country more than two years before they were sold.
It also does not apply to private sales and certain used cars since LCT has already been paid on these vehicles when they were initially imported and sold. There is an exception to this rule, though—if you sold a car that is under two years old and paid LCT on it already, but the vehicle has increased in value. In this case, you will need to pay the luxury car tax on the increase. However, this is an unlikely scenario as cars tend to depreciate over time.
Other exceptions from the LCT include
- Vehicles that have been altered to accommodate people with a disability
- Imported motorhomes, campervans, commercial vehicles that carry goods instead of passengers, and vehicles that are used (or will be used) as emergency vehicles
- Recipients who have quoted an ABN
How is LCT calculated?
To get to the amount you need to pay in luxury car tax follow this formula
LCT value – LCT threshold x 10 ÷ 11 x 33%
Take away the LCT threshold from the vehicle retail value, which includes GST, customs duty, dealer delivery charges, and standard and statutory warranties. Multiply it by 10 ÷ 11 (that is GST which is currently 10%) and then multiply it by the LCT, i.e. 33 ÷ 100.
Here is a practical example:
Let’s say you are buying a car worth $100,000. Using the formula above you would need to pay LCT in the amount of $4,525.20.
If you are thinking of importing and selling a new car, you can use this method to calculate the added cost of LCT or try an online luxury car tax calculator.
Note: The retail value of the car does not include stamp duty, registration and transfer fees, compulsory third-party insurance, loan payments, extended warranties and service plan costs.
1. Who is exempt from the luxury car tax in Australia?
Cars that are older than two years and under the LCT thresholds are exempt from the tax. LCT is also waived if you are importing a motorhome, caravan or vehicle used for the transportation of goods or if you have modified the car so it can be used by people with disabilities.
2. What qualifies as a luxury car?
All cars that are valued above the luxury car threshold are defined as luxury cars. So if you buy or import a vehicle that costs more than $84,916 (for fuel-efficient cars) or $71,849 for other vehicles, you own a luxury vehicle. Just for comparison, the average cost of a car Down Under is $40,128, the latest statistics on car ownership costs reveal.
3. Do you have to pay luxury car tax on a used car?
Typically, you don’t need to pay luxury car tax for a used car if it is older than two years, starting from the date it was imported or manufactured in the country. However, in rare circumstances, when the used car is less than two years old and has increased in value, you will have to pay LCT on the increase in value.