Written byLuxury car tax (LCT) is a tax on cars whose GST-inclusive value is above the LCT threshold, charged only on the amount over the line and built into the price.
Also known as: LCT, luxury car tax, luxury tax on cars
Key points
- There are two thresholds, a higher one for fuel-efficient cars, both indexed each 1 July; the current figures are on the ATO site.
- Only the value above the threshold is taxed: a car just over the line attracts a little LCT, not tax on the whole price.
- It applies to cars two years old or less that seat fewer than nine; utes and vans built to carry goods are outside it.
- The dealer pays the ATO and passes it on, so LCT sits inside the amount you finance on a car loan or novated lease.
How luxury car tax works
LCT sits on top of GST. A car's value is measured including GST, and if that figure is above the threshold, a fixed percentage of the excess is added as LCT. Dealers and importers who are registered for GST account for it on their activity statement; a private buyer importing a car pays it at the border. Either way the tax is priced into what the buyer pays.
Unlike GST, a business cannot claim LCT back as a credit. There are narrow exceptions, such as partial refunds for primary producers and some tourism operators, and cars modified for a person with a disability, but for most buyers LCT is simply part of the cost of the car.
Which cars are caught
For LCT a car is a motor vehicle designed to carry a load of less than two tonnes and fewer than nine passengers, so a family SUV, a dual-cab ute with a modest payload and a prestige sedan are all in scope if the price is high enough. Vans and utes designed principally to carry goods, and motorcycles, are not. The tax only applies to cars two years old or less, which is why a well-priced used prestige car carries no fresh LCT.
The fuel-efficient threshold is higher, which favours electric cars and the most frugal hybrids. The definition of fuel-efficient was tightened in 2025, so a conventional hybrid that qualified a few years ago may not now, while most plug-in hybrids and all electric cars still do; the ATO publishes the current test.
LCT and finance
Because LCT is part of the price, it is part of the amount financed and you pay interest on it like the rest of the loan. For a business buyer the tax also interacts with the car limit: depreciation is capped at the car limit regardless of price, and the input tax credit for GST is capped at one-eleventh of that limit, so an expensive car gives up part of its deductions.
The fuel-efficient LCT threshold also decides whether an electric car qualifies for the FBT exemption on a novated lease: the car must have been below that threshold when first sold. Two cars either side of the line can carry very different tax, so the threshold is worth checking before the prices are compared.
Example
A dentist in Kalgoorlie wants a European SUV for the practice, priced a little above the standard LCT threshold. The dealer's quote already includes LCT on the slice above the line, so the amount she finances on a chattel mortgage through her company includes it. Her accountant points out that depreciation will be capped at the car limit and the GST credit at one-eleventh of that limit, whichever model she picks. She runs both the SUV and a cheaper alternative through an LCT calculator and finds the tax difference is smaller than the gap in running costs.
Not to be confused with
- Goods and services tax (GST)
- GST applies to the whole price of every car, while LCT applies only to the slice above the threshold
- Stamp duty
- stamp duty is a state tax on the transfer of any vehicle, while LCT is a federal tax on the sale of a high-value car two years old or less
Frequently asked questions
Who pays luxury car tax?
Legally the dealer or importer, who reports and pays it to the ATO. In practice the buyer, because it is built into the drive-away price. If you import a car yourself you pay LCT to the Australian Border Force as part of the import process, alongside GST and customs duty.
Does LCT apply to used cars?
Only to cars two years old or less. A used car older than that carries no LCT even if it sells above the threshold. A near-new car resold within two years attracts LCT only on any increase in value, with credit for tax already paid, so in a normal market where cars lose value there is usually none.
Can a business claim LCT back like GST?
No. GST on a business car is generally claimable as an input tax credit up to the car limit; LCT is not creditable at all. Limited refunds exist for primary producers and some tourism operators on eligible vehicles, and modifications for a person with a disability are treated differently, but for most businesses LCT is a cost.
Is LCT included in the amount I finance?
Yes. LCT is part of the vehicle's price, so it is part of the amount the lender pays the dealer and part of what you repay with interest. The same goes for stamp duty and registration if they are rolled into the loan. The finance contract does not itemise it separately.
Do electric cars pay luxury car tax?
Only if they are priced above the fuel-efficient threshold, which is set higher than the standard one. Many electric cars fall under it and carry no LCT. The same threshold decides whether an electric car qualifies for the FBT exemption on a novated lease, so a price either side of it matters twice over.
Related terms
Goods and services tax (GST)
Goods and services tax (GST) is a broad-based 10% tax on most goods and services sold in Australia, which registered businesses collect on sales and pay to the ATO.
Read definitionFringe benefits tax (FBT)
Fringe benefits tax (FBT) is a tax employers pay on non-cash benefits given to employees, such as a work car available for private use.
Read definitionNovated lease
A novated lease is a three-way car lease where your employer takes over the lease payments and deducts them from your salary, mostly before tax, while you work there.
Read definitionCar loan
A car loan is a credit contract used to buy a vehicle: the lender provides the funds and you repay them over time with interest.
Read definitionDepreciation
Depreciation is the fall in an asset's value over time, spread across the years the asset is used so the cost can be claimed as a tax deduction.
Read definitionInput tax credit
An input tax credit is the GST a registered business can claim back on the price of goods and services it buys for business use.
Read definitionGo deeper
Sources
This article is general information only and is not financial advice.