What is Luxury Car Tax (LCT)
Luxury Car Tax (LCT) is a one-time tax imposed by the Australian government on vehicles that exceed certain price thresholds, which are adjusted annually. It applies to both new and imported vehicles under two years old. Once paid at the point of purchase or import, LCT is not a recurring tax—you only pay it once during the life of the vehicle, unlike annual registration or insurance costs.
Introduced in 2000, the Luxury Car Tax (LCT) was initially designed to protect Australia’s local car manufacturing industry by making imported luxury vehicles more expensive and less competitive. However, even after the end of domestic car production, the LCT remains in place. Today, the tax primarily functions as a revenue generator for the government, with an added focus on wealth redistribution by targeting high-end vehicle purchases. Despite its ongoing application, the LCT has been the subject of controversy. Critics argue that it unfairly singles out luxury cars while other high-end goods, such as boats and watches, remain exempt from similar taxation, sparking calls for reform and even the potential abolition of the tax.
When Does Luxury Car Tax Apply?
LCT is triggered when the price of a vehicle exceeds the threshold set by the Australian Tax Office (ATO) for a particular financial year.
For the 2024–2025 financial year, the thresholds are:
- Fuel-efficient vehicles (less than 7L/100km): $91,387.
- Non-fuel-efficient vehicles: $80,567.
The tax is applied only to the portion of the vehicle’s value that exceeds this threshold. For example, if you purchase a non-fuel-efficient vehicle valued at $100,000, LCT will be calculated on the amount above $80,567.
Luxury Car Tax Calculator using 2024-2025 Thresholds
LCT is calculated at a rate of 33% on the value of the car above the applicable threshold.
For example, if you purchase a non-fuel-efficient vehicle for $100,000, the LCT calculation would work as follows:
- Subtract the threshold: $100,000 − $80,567 = $19,433
- Remove GST by dividing by 1.1: $19,433 ÷ 1.1 = $17,666.36.
- Apply the 33% tax rate: $17,666.36 × 0.33 = $5,829.90
In this case, you would pay $5,829.90 in LCT.
The following LCT Calculator allows you to estimate the Luxury Car Tax based on the most recent thresholds for 2024-2025. Simply enter your vehicle price, including GST, customs duties (for imported vehicles), and any optional extras, and select whether it is fuel-efficient or not to see how much tax you might owe. Note: Delivery charges, insurance, and registration costs are not included.
How to Pay Less or Avoid LCT
LCT Exemptions for Certain Businesses and Industries
While most luxury car buyers are subject to the Luxury Car Tax, certain businesses and industries can be exempt from paying LCT or claim a partial refund. These exemptions help industries where the use of luxury vehicles is necessary for their operations. Here are some examples of who can benefit:
- Primary Producers: Farmers and agricultural businesses can claim a partial refund of up to $10,000 on LCT for vehicles used primarily for primary production. This helps reduce the tax burden on those purchasing high-end vehicles necessary for farming operations.
- Tourism Operators: Businesses in the tourism industry can also claim a partial refund of up to $10,000 on LCT for vehicles used primarily for transporting tourists. This tax relief applies to luxury vehicles that are an essential part of tourism operations, such as guided tours or high-end transport services.
- Public Institutions: Museums, galleries, and libraries can be exempt if the vehicle is purchased for public exhibition.
- Emergency Vehicles: Ambulances, fire trucks, police cars, and rescue vehicles are fully exempt from LCT.
- Commercial Vehicles: Trucks and vans primarily designed for transporting goods are exempt from LCT.
These exemptions provide relief to industries where luxury vehicles are essential for operational purposes rather than personal use.
Legal Ways to Reduce or Avoid Luxury Car Tax (LCT)
While LCT is generally unavoidable for high-end vehicle purchases, there are several strategies to reduce or avoid the tax:
- Buy Fuel-Efficient Vehicles: The LCT threshold for fuel-efficient vehicles is higher, reducing the amount of tax you have to pay. Starting from July 2025, only vehicles that consume less than 3.5 litres per 100 km will qualify as fuel-efficient.
- Purchase Used Vehicles: LCT only applies to new or imported cars that are less than two years old. Buying a used car older than two years exempts you from the tax.
- Commercial and Special Exemptions: Vehicles used primarily for transporting goods, emergency services, or adapted for use by individuals with disabilities are exempt from LCT. Similarly, tourism operators and primary producers may claim a refund on LCT.
- Consider Leasing: Leasing a vehicle may reduce overall costs, including LCT, particularly if it’s a fuel-efficient vehicle.
Changes in LCT Regulations
From July 2025, Australia is changing the way it applies the Luxury Car Tax (LCT) to fuel-efficient vehicles. Currently, cars that use up to 7 litres of fuel per 100 kilometres are considered fuel-efficient and qualify for a higher LCT threshold. But with the new rules, only cars that use 3.5 litres of fuel per 100 kilometres or less will meet this definition. This means that many hybrid cars, which are fuel-efficient but still use more than 3.5 litres per 100 kilometres, will no longer get the same tax benefit. Most of the vehicles that qualify will likely be electric vehicles (EVs) and some plug-in hybrids.
Additionally, the government is changing how the LCT threshold is adjusted over time. Currently, the threshold (the price above which the LCT applies) is updated based on general inflation in the economy. However, starting in 2025, this adjustment will be linked specifically to the price changes of cars rather than the general cost of living. This could mean the threshold increases or decreases differently than before, depending on how car prices change.
Final Thoughts: Managing Luxury Car Tax (LCT) Effectively
Luxury Car Tax can add a significant cost when purchasing high-end vehicles. By understanding how LCT applies and exploring legal ways to reduce or avoid it, you can potentially save thousands of dollars. With upcoming changes to the fuel-efficient vehicle definition, it’s more important than ever to stay informed and ensure you’re minimising your LCT liability.
To get an accurate estimate of your LCT, use our LCT Calculator to help plan your next vehicle purchase. Whether you are buying a luxury vehicle for personal use or business purposes, understanding how LCT applies can save you thousands. We are here to provide expert guidance on navigating the Luxury Car Tax, ensuring you make informed decisions that save you money. Contact us today for tailored tax solutions and guidance to make the most of your vehicle purchase.
