The Australian luxury car tax is a 33% tax charged on the value of a car above a set threshold. For the 2025-26 financial year, that threshold is $80,567 for most cars and $91,387 for fuel-efficient ones. The tax sits on top of GST and usually gets built into the price a dealer quotes you, so by the time you sign the contract it’s already baked in. A tighter fuel-efficiency definition that took effect on 1 July 2025 means far fewer cars now qualify for the higher threshold than before.
What Counts as a Car
The tax uses a broader definition of “car” than most buyers expect. Under section 27-1 of the LCT Act, a car is any motor vehicle (excluding motorcycles) designed to carry a load of less than 2 tonnes and fewer than 9 passengers.1Australasian Legal Information Institute (AustLII). A New Tax System (Luxury Car Tax) Act 1999 – Sect 27.1 Sedans, SUVs, performance cars, and most dual-cab utes fall inside that net.
A vehicle whose principal purpose is carrying goods for business or trade rather than passengers counts as a commercial vehicle and sits outside the LCT rules entirely.2Australian Taxation Office. Definitions – Luxury Car Tax The ATO looks at design, not how you actually use the vehicle. Its determination LCTD 2023/1 sets out how that assessment works, and it’s where most disputes about high-end utes end up.
Motorhomes and campervans, emergency vehicles used by police, fire, or ambulance services, and vehicles specifically fitted to transport people seated in wheelchairs are also excluded.
2025-26 Thresholds and the Fuel-Efficiency Change
LCT applies only to the portion of a car’s value above the relevant threshold:
- Fuel-efficient vehicles: $91,387
- Other vehicles: $80,567
Both figures are unchanged from 2024-25 because the indexation factor came in below 1, which prevents the thresholds from decreasing.3Australian Taxation Office. Luxury Car Tax Rate and Thresholds
The bigger shift is what “fuel-efficient” now means. Before 1 July 2025, a car qualified for the higher threshold if its combined fuel consumption did not exceed 7 litres per 100 kilometres. From 1 July 2025, that ceiling dropped to 3.5 litres per 100 kilometres.4Australian Parliament House. Treasury Laws Amendment (Tax Incentives and Integrity) Bill 2024 Fully electric vehicles and most plug-in hybrids still clear the bar. Many efficient petrol and diesel cars that previously qualified at 5 or 6 litres per 100 kilometres now fall into the “other vehicles” category with the lower $80,567 threshold, which can add thousands in LCT to a purchase that would have attracted less under the old rules.
How the Tax Is Calculated
The formula is simple. Take the car’s LCT value, subtract the relevant threshold, multiply by 10/11 to strip out the GST component, then multiply by 33%.5Australian Taxation Office. Working Out the LCT on a Sale
Working out the LCT value correctly is where people slip. It must include the retail price, GST, any customs duty, and dealer delivery charges. It does not include stamp duty, registration fees, transfer fees, or compulsory third-party insurance.5Australian Taxation Office. Working Out the LCT on a Sale Accessories fitted or agreed to before delivery get pulled into the calculation, so factory options and dealer-installed upgrades count.
Worked Example
A non-fuel-efficient car has an LCT value of $88,000 in 2025-26. The calculation:
($88,000 − $80,567) × 10 ÷ 11 × 33% = $2,2295Australian Taxation Office. Working Out the LCT on a Sale
If the same car qualified as fuel-efficient, the threshold would be $91,387 and no LCT would apply, because the value sits below it. That gap is exactly what the tighter fuel-efficiency definition changed for many buyers this year.
Imported Vehicles
For imports, the LCT value starts with the customs value of the car and adds international transport costs, insurance, customs duty, and any GST payable on the importation. The same 33% formula then applies.6Australian Taxation Office. Working Out the LCT on an Import Parts and accessories shipped with the car and reasonably expected to be fitted to it get rolled into the customs value as well.
Who Pays It
LCT is a single-stage tax, collected once in a vehicle’s life rather than on every resale.7Australasian Legal Information Institute (AustLII). A New Tax System (Luxury Car Tax) Act 1999 – Sect 2.1 Three situations trigger the obligation:
- A GST-registered business (or one required to be registered) sells a luxury car in the course of its business. Dealers, wholesalers, manufacturers, and fleet operators all fall here, and the cost is normally built into the sticker price.
- An individual imports a vehicle above the threshold. LCT is paid directly to the Department of Home Affairs as part of customs clearance, and the car can’t be released until it’s paid.6Australian Taxation Office. Working Out the LCT on an Import
- A business provides a luxury car to an employee or associate, including as part of a salary package.
Private resales between individuals who aren’t GST-registered don’t trigger a fresh LCT charge, because the tax was collected on the first qualifying sale or importation.
Exemptions
Some vehicles escape LCT regardless of price:
- Commercial vehicles whose principal purpose is carrying goods rather than passengers.2Australian Taxation Office. Definitions – Luxury Car Tax
- Motorhomes and campervans, where the primary function is accommodation.
- Police, fire, and ambulance vehicles used for operational purposes.
- Cars specifically fitted to transport people seated in wheelchairs.
Refunds for Primary Producers and Tourism Operators
Primary producers and tourism operators can claim a partial refund of LCT paid, up to $10,000 per eligible vehicle.8Australian Taxation Office. Luxury Car Tax Credits and Refunds The vehicle must be four-wheel drive or all-wheel drive and either a passenger car (MA category) with at least 175mm of ground clearance or an off-road passenger vehicle (MC category).9Australian Taxation Office. Application for Luxury Car Tax Refund – For Primary Producers and Tourism Operators
Primary producers can claim for only one eligible vehicle per financial year. Tourism operators can claim for every eligible vehicle they buy.8Australian Taxation Office. Luxury Car Tax Credits and Refunds Both need to be GST-registered. Primary production covers farming, fishing, pearling, and forestry. Tourism operators must use the car solely for carrying tourists engaged in leisure activities of a touring nature; taxi, limousine, and hire-car services don’t qualify.
Claims are lodged on the ATO’s dedicated application form, not through your BAS or Home Affairs, and you have four years from the date of purchase or importation to lodge.8Australian Taxation Office. Luxury Car Tax Credits and Refunds
Business Buyers: No LCT Credit, and the Car Limit
Businesses sometimes assume LCT can be claimed back the way GST credits can. It can’t. There’s no input tax credit for LCT, regardless of how much the car is used for business.10Australian Taxation Office. Purchasing a Motor Vehicle
GST credits on the car itself are also capped. For 2025-26, the car limit is $69,674. The maximum GST credit you can claim on a car purchase is one-eleventh of that limit, or $6,334. The same $69,674 figure caps the depreciation you can claim for income tax purposes on a car first used or leased in 2025-26.11Australian Taxation Office. Changes to Car Thresholds From 1 July
Full GST credits above the car limit are available in limited situations: cars held solely as trading stock for resale, vehicles used for manufacturer R&D, GST-free exports, emergency vehicles, commercial vehicles not principally designed to carry passengers, motorhomes, and wheelchair-fitted vehicles.10Australian Taxation Office. Purchasing a Motor Vehicle
Deferring LCT by Quoting an ABN
A business can defer paying LCT at the point of sale by quoting its ABN, but only if the vehicle will be used for one of three purposes:12Australian Taxation Office. Luxury Car Tax (LCT)
- Held as trading stock for resale, not for hire or lease.
- Used for research and development on behalf of the car’s manufacturer.
- Exported in circumstances that qualify as GST-free.
If you quote your ABN and then start using the vehicle for a non-qualifying purpose (personal use, salary packaging, or as a business capital asset), you must report an increasing adjustment on your next BAS and pay the deferred tax then.13Australian Taxation Office. Adjustments This is an area the ATO watches closely.
Reporting, Records, and Penalties
Businesses report LCT on their BAS using the same tax period they use for GST, whether monthly, quarterly, or annual.14Australian Taxation Office. Reporting and Keeping Records The tax is accounted for in the period the vehicle was sold or delivered to the customer. Individuals importing a luxury car pay it to the Department of Home Affairs during customs clearance, with no option to defer.6Australian Taxation Office. Working Out the LCT on an Import
Records supporting LCT calculations must be kept for at least five years from the date the record was prepared or the transaction completed, whichever is later.15Australian Taxation Office. Overview of Record-Keeping Rules for Business That covers invoices, customs declarations, delivery documentation, and any working papers used to determine the LCT value. Digital records are fine as long as they’re accessible, searchable, and in English or readily convertible.
Late BAS lodgement attracts a failure-to-lodge penalty of one penalty unit for every 28 days (or part) the document is overdue, capped at five penalty units, with multipliers for medium and large withholders.16Australian Taxation Office. Failure to Lodge on Time Penalty The ATO also charges interest on any unpaid tax from the due date. A single luxury car can generate several thousand dollars in LCT, so the cost of being late compounds fast.