A luxury car tax is a surcharge governments place on vehicles priced above a set threshold, aimed at expensive cars rather than everyday transport. Australia runs the best-known version: a 33% tax on the portion of a car’s GST-inclusive price that exceeds $80,567 for standard vehicles or $91,387 for fuel-efficient ones in the 2025–26 financial year.1Australian Taxation Office. Luxury Car Tax Rate and Thresholds The United States has no tax by that name, though several federal rules produce similar effects on pricey or thirsty vehicles.
How Australia’s Luxury Car Tax Works
LCT is paid by car dealers on their sales and by anyone who imports a luxury vehicle directly.2Australian Taxation Office. How LCT Works A “car” for LCT means a passenger vehicle built to carry fewer than nine people and less than two tonnes of load. That covers most sedans, coupes, and SUVs, but not heavy commercial vehicles.
Two thresholds decide when the tax bites, and which one applies depends on fuel efficiency. From 1 July 2025, a car qualifies as fuel-efficient only if its combined fuel consumption is 3.5 litres per 100 kilometres or less, measured under the Road Vehicle Standards Act 2018.3Australian Taxation Office. Definitions – Luxury Car Tax The previous benchmark was 7 litres per 100 kilometres, so many conventional hybrids and efficient petrol cars used to reach the higher threshold. Under the tighter rule, essentially only fully electric vehicles and some plug-in hybrids qualify. On a car sitting near the cutoff, the change can add thousands to the tax bill.
A car with a GST-inclusive price below the relevant threshold owes no LCT.
Calculating the Tax
LCT is a flat 33%, applied only to the amount by which a car’s value exceeds the threshold.4Australian Taxation Office. Luxury Car Tax (LCT) The “LCT value” includes the base price, GST, customs duty, and dealer delivery charges, along with any parts and accessories supplied at the same time. It excludes registration fees, stamp duty, and compulsory third-party insurance.1Australian Taxation Office. Luxury Car Tax Rate and Thresholds
The math runs in three steps:
- Subtract the applicable threshold from the car’s GST-inclusive price to get the excess.
- Multiply the excess by 10/11 to strip out the GST.
- Multiply that GST-exclusive figure by 33% to get the LCT.
A worked example. Take a fuel-efficient car priced at $105,000 GST-inclusive. Subtract the $91,387 threshold and the excess is $13,613. Multiplying by 10/11 gives $12,375. Applying 33% produces $4,084 in LCT.4Australian Taxation Office. Luxury Car Tax (LCT) The same car, if not fuel-efficient, would fall under the $80,567 threshold and the LCT would jump to roughly $7,324.
What Is Exempt
Several categories fall outside LCT altogether:
- Commercial vehicles built mainly to carry goods rather than passengers, including work trucks and utes that meet the principal-purpose test.
- Motorhomes and campervans, treated as living accommodation.
- Disability modifications: LCT still applies to the base vehicle, but the value of modifications fitted to help a person with a disability is excluded from the calculation.
- Vehicles on which LCT has already been paid; subsequent sales are not taxed again on the same value.
- Cars manufactured or imported more than two years before sale, in certain business-to-business transactions where the buyer quotes an ABN.
These sit within the ATO’s guidance on when LCT does not apply.5Australian Taxation Office. When Luxury Car Tax Doesn’t Apply GST-registered primary producers and tourism operators can also claim a refund of LCT paid on eligible four-wheel-drive or all-wheel-drive vehicles that meet ground-clearance or off-road classification rules, with primary producers limited to one refund per financial year and tourism operators eligible on every qualifying vehicle.6Australian Taxation Office. Application for Luxury Car Tax Refund for Primary Producers and Tourism Operators
Who Pays and When
Dealers and importers report LCT through their Business Activity Statement, the same form used for GST.7business.gov.au. Business Activity Statement The tax becomes payable at the point of sale or, for imports, during customs clearance.8Australian Border Force. Luxury Car Tax Exemptions Dealers usually build LCT into the drive-away price, so buyers rarely handle it directly. Private importers do, and settle it as part of the import process.
Does the United States Have a Luxury Car Tax?
Not currently. Congress imposed a 10% federal excise on passenger vehicles priced above $30,000 through the Omnibus Budget Reconciliation Act of 1990, and the automobile portion expired at the end of 2002. The remaining statutory language was struck from the Internal Revenue Code in 2014.9Office of the Law Revision Counsel. 26 USC Chapter 31 – Retail Excise Taxes Expensive vehicles still face special treatment, though, through three separate federal mechanisms.
The Gas Guzzler Tax
The gas guzzler tax is a federal excise on new passenger cars whose combined EPA fuel economy falls below 22.5 miles per gallon. The manufacturer or importer owes an amount that scales with inefficiency.10Office of the Law Revision Counsel. 26 USC 4064 – Gas Guzzler Tax Rates start at $1,000 for cars rated between 21.5 and 22.5 mpg and rise to $7,700 for anything below 12.5 mpg.11Internal Revenue Service. Gas Guzzler Tax – Form 6197 The cost is generally rolled into the sticker price and disclosed on the window label.
The tax’s biggest quirk is what it leaves out. SUVs, pickup trucks, and minivans are exempt because they are classified as nonpassenger vehicles under the transportation standards in effect when the tax was created in 1978.12U.S. Environmental Protection Agency. Gas Guzzler Tax The statute also excludes any four-wheeled vehicle rated above 6,000 pounds unloaded gross vehicle weight, along with ambulances and law-enforcement vehicles.10Office of the Law Revision Counsel. 26 USC 4064 – Gas Guzzler Tax Many of the thirstiest vehicles on the road pay nothing, while a 400-horsepower sedan is hit.
Depreciation Caps on Expensive Vehicles
Section 280F of the Internal Revenue Code caps how much depreciation a business can deduct each year on a passenger vehicle, regardless of its cost. For vehicles placed in service in 2026 where bonus depreciation applies, the annual limits are:
- Year 1: $20,300
- Year 2: $19,800
- Year 3: $11,900
- Each year after: $7,160
The figures come from the IRS’s annual inflation-adjusted tables.13Internal Revenue Service. Revenue Procedure 2026-15 Buy a $90,000 sedan for your business, and you cannot deduct the full cost in year one the way you might with other equipment. The deduction spreads over many years, capped at the amounts above, and full recovery on a car that expensive can take more than a decade.
Heavy vehicles offer a workaround. SUVs, trucks, and vans with a gross vehicle weight rating above 6,000 pounds but not more than 14,000 pounds sit outside the Section 280F caps and instead qualify for a Section 179 deduction. That deduction is itself capped for SUVs; the 2025 SUV-specific Section 179 cap was $31,300.14Internal Revenue Service. Publication 463 (2025) – Travel, Gift, and Car Expenses Any cost above the Section 179 amount can qualify for bonus depreciation. This is a major reason heavy SUVs are popular as business vehicles.
Clean Vehicle Credit Price and Income Caps
The federal clean vehicle credit under Section 30D provides up to $7,500 for qualifying new electric and plug-in hybrid vehicles, but only if the manufacturer’s suggested retail price stays below set limits. The cap is $80,000 for SUVs, vans, and pickup trucks and $55,000 for sedans and other passenger cars.15Internal Revenue Service. Topic B – Frequently Asked Questions About Income and Price Limitations for the New Clean Vehicle Credit Classification comes from the EPA fuel economy label, not the marketing name.
Income matters too. Modified adjusted gross income cannot exceed $300,000 for married filing jointly, $225,000 for head of household, or $150,000 for single filers, and buyers can use either the current year’s or the prior year’s income, whichever qualifies.16U.S. Department of Energy. New and Used Clean Vehicle Tax Credits These caps function as a de facto luxury cutoff. Spend too much on the car or earn too much yourself, and the benefit disappears. This does not add a tax to expensive vehicles the way Australia’s LCT does; it withholds a benefit, producing a similar pull toward keeping the price down.