What is luxury car tax?

What is luxury car tax?

The luxury car tax (LCT) is a tax collected by the Australian Taxation Office on imported vehicles over a set price threshold.

The tax is typically payable by businesses that purchase or import luxury cars as well as on non-business entities that import luxury cars. The cost is then included in the price of the vehicle and passed onto the buyer.

The LCT is a tax of 33% applied to the value of a car above the LCT threshold. However, this threshold is reviewed every year and other conditions will determine whether a car qualifies for LCT.

The LCT was originally intended to support the Australian automotive industry by encouraging people to purchase locally-made cars. Many Aussies are now critical of the LCT, given that Australia no longer has a domestic car manufacturing industry.

Expert insight: Criticism of the LCT

"The existence of a Luxury Car Tax (LCT) is impossible to justify in 2025.

There's no local car industry to protect, so the LCT makes the newest, safest, and most efficient vehicles harder for new car buyers to reach.

With the rising costs of building and importing new vehicles, we now see more vehicles attracting luxury car tax that would not be considered 'luxury' vehicles.

It's also not a tax applied to other luxury product such as boats or houses, so it's an unfair tax, inconsistently applied.

From Polestar's perspective, the deletion of LCT is long overdue and will benefit buyers of all vehicles – not just electric vehicles."

Scott Maynard

Managing director, Polestar

Luxury car tax rates and thresholds (2025-26)

The LCT changes depending on the year and fuel efficiency of the vehicle. It's charged at 33% of the amount that is above the LCT threshold. The table below shows the yearly threshold for both fuel-efficient and other vehicles.

How to calculate your luxury car tax

To calculate your estimated LCT you can simply use our calculator. But if you prefer a more hands-on approach, you can opt for the formula below instead.

To calculate yourself, you first need to determine the LCT value of the car. This includes what you paid for the car including GST, customs duties and any other costs at the time of the import. You then subtract the LCT threshold. You can check the threshold for the applicable year using the table above. Then use the following formula:

(LCT value - LCT threshold) x 10/11 x 33/100 = LCT amount

To see an example of how to use this formula, take a look at the example below.

Example

Janice is considering purchasing a new fuel-efficient vehicle priced at $105,000 (including GST) during the 2024–25 financial year. The Luxury Car Tax (LCT) threshold for fuel-efficient vehicles this year is $91,387.​

To calculate the LCT payable:

• Determine the amount exceeding the threshold: $105,000 − $91,387 = $13,613
• Remove the GST component: $13,613 ÷ 1.1 = $12,375.45
• Apply the LCT rate of 33%: $12,375.45 × 0.33 = $4,083.90

Total LCT payable: $4,083.90

Janice can expect to pay approximately $4,083.90 in Luxury Car Tax on her new vehicle.

Are there exemptions to the luxury car tax?

There are a few exemptions to the LCT:

• Commercial vehicles.
• Trucks or vans carrying over 2 tonnes.
• Motorhomes or campervans.
• Emergency vehicles.
• If the car was purchased 2 years before supply.
• Modifications for disabilities. If the car in question is under the LCT threshold, but modifications to the car for a person with a disability (e.g. hand controls) bring the price over the threshold, then the buyer will not be subject to the LCT. However, if the price of the car is above the threshold, then LCT will apply.
• Disability exemptions. If you are an eligible veteran or person with a disability, you may be exempt from LCT if the car in question is specifically fitted out for transporting a person with a disability seated in a wheelchair. However, if the car is GST-free under GST law, then LCT will apply.

Frequently asked questions about luxury car tax

• I've already paid LCT on my vehicle and I'm selling my car. Do I need to pay it again?

  If the vehicle you're selling is less than 2 years old and the car has already been subject to LCT, you may need to pay it again if the car has increased in value. The LCT payable will decrease by the amount you previously paid.

• I'm purchasing a vehicle that was imported one and a half years ago. Do I still need to pay LCT?

  Yes. LCT is only waived for vehicles imported 2 or more years ago.

• I want to start a business selling luxury cars. What do I need to do in regard to LCT?

  Before paying for LCT, you need to be registered for GST and LCT. Your GST registration needs to be processed before registering for LCT.

• Do you pay luxury car tax on demonstrator cars?

  Luxury car tax applies to demonstrator cars where the price (including GST and excluding government fees and charges such as stamp duty, registration and CTP) exceeds the threshold.

• How do I avoid the luxury car tax in Australia?

  There are a number of ways to avoid the LCT:

  • Opt for a fuel-efficient car, as a higher threshold of $79,659 applies.
  • If you are an eligible veteran or person with a disability, you may be exempt from LCT if the car in question is specifically modified for transporting a person using a wheelchair. However, if the car is GST-free under GST law, then LCT will apply.
  • Omit optional extra features, such as privacy glass, larger alloy wheels, exterior styling upgrades or premium sound systems that you like (but don't necessarily need) to reduce the purchase price below the LCT threshold. These can typically be installed after you've bought the car. For things like metallic paint finishes, it's more cost-effective to just order the colour you want from the factory. If you're after a glass panoramic roof, retrofitting may not even be a realistic alternative.
  • Purchase a vehicle that's at least 2 years old (LCT doesn't apply, regardless of the value of the vehicle).
  • Purchase a second-hand vehicle less than 2 years old (as the luxury car tax has already been paid, the purchaser gets a credit for the LCT previously paid).
  • Buy the vehicle for commercial use. LCT doesn't apply to vans, trucks and utilities that are commercial vehicles.

• Can I claim the luxury car tax?

  You can't claim a GST credit for any luxury car tax you pay when you purchase a luxury car.

• Why does Australia have a luxury car tax?

  The LCT was introduced in 2000 as an incentive for people to purchase Australian-made cars in order to protect the local automotive industry. Since the collapse of that industry in 2013, the LCT has been a bone of contention for many Australians.

Written by

Rebecca Pike

Editor, Money

Rebecca Pike is Finder’s money editor, with over 7 years of experience in mortgages and personal finance. A frequent TV and radio commentator, she frequently appears on Sunrise and 7News, Today and 9News, as well as Sky News, Channel 10 and across radio and print. Rebecca previously served as Editor of Mortgage Professional Australia. She has a Master’s degree in Journalism as well as ASIC-recognised certifications in Tier 1 Generic Knowledge and Tier 2 General Advice Deposit Products, which comply with ASIC guidelines. See full bio

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