Luxury Car Tax Threshold 2026-27: The Current Limits

If you are shopping for a car above about $80,000, the luxury car tax threshold decides whether the price you are quoted has a 33% tax layer built into it. For 2026-27 that threshold is $91,661 for fuel-efficient vehicles and $80,809 for everything else, and the tax applies to the amount over the line rather than the whole price.

The current luxury car tax threshold

The threshold that applies is the one for the financial year in which the car was imported, acquired or sold, not the year you first looked at it. That matters at the end of June, when a car sold or acquired a week later falls under a different figure.

Both thresholds crept up on 1 July 2026, by $274 for fuel-efficient vehicles and $242 for the rest. The ATO ties each year's increase to the motor vehicles consumer price index, so the line moves roughly with what cars actually cost. Figures verified against the ATO on 14 August 2026.

Why there are two luxury car tax thresholds

A car that meets the ATO's fuel-efficient definition gets $10,852 more headroom in 2026-27 before any luxury car tax is charged at all. On a car priced between the two thresholds, that is the difference between paying luxury car tax and paying none.

That headroom moves around. Across the six years in the table it has ranged from $10,507 in 2021-22 to $13,067 in 2022-23, and it sits at $10,852 for 2026-27.

What the 2025 rule change did

From 1 July 2025 the rules changed in two ways that matter when you are comparing cars across the two thresholds.

The big one is the fuel-efficiency cut-off. A car now has to use 3.5 litres per 100 km or less on its combined rating to qualify for the higher threshold. Before July 2025 the cut-off was 7 litres, which let a much wider range of hybrids and small engines through. If you are looking at a hybrid that sips 5 litres per 100 km, it no longer qualifies and falls under the lower $80,809 line.

Cars that were already sold or imported before 1 July 2025 keep the old 7-litre test, so the tighter rule only catches vehicles entering the market from that date onward.

What crossing the luxury car tax threshold costs

The ATO's formula is (LCT value minus LCT threshold) multiplied by 10, divided by 11, multiplied by 33%. The 10 divided by 11 step in the ATO's formula removes the GST component from the amount above the threshold before the 33% rate is applied.

The practical effect is that luxury car tax costs 30 cents per GST-inclusive dollar above the threshold. A car at $81,809 is $1,000 over the 2026-27 other-vehicles threshold and attracts $300 of luxury car tax.

The ATO's own worked example uses the $88,000 line. On a car not qualifying as fuel-efficient, $88,000 minus $80,809 is $7,191, which after the GST step and the 33% rate produces $2,157.30 of luxury car tax, and the customer is charged $90,157.30 before stamp duty, CTP insurance, registration and other charges.

The last two rows show what the fuel-efficient definition is worth. The same $95,000 car attracts $4,257.30 outside the definition and $1,001.70 inside it, a difference of $3,255.60.

What counts towards the threshold

The LCT value is the retail price including GST and any customs duty, dealer delivery charges, standard and statutory warranties, and additional items such as accessories, modifications and treatments applied before delivery or under an arrangement with the supplier.

Fleet rebates, run-out model support incentive payments and other motor vehicle incentive payments that are third-party consideration also count towards the LCT value. So a discount that arrives as an incentive payment does not necessarily pull a car back under the threshold.

The exclusions matter just as much. Stamp duty, transfer fees, registration, CTP insurance, extended warranties, service plans and the cost of financing the purchase all sit outside the LCT value, so a driveaway price is not the number the threshold is tested against.

Who actually pays it

Luxury car tax is generally paid by businesses that are registered, or required to be registered, for GST and that sell or import luxury cars. That covers retailers, wholesalers, manufacturers and other businesses selling luxury cars. An individual who imports a luxury car themselves also pays it.

In practice, a private buyer never files a return for luxury car tax. The dealer or importer remits it, and the cost lands in the sticker price. That is why the ATO's own example shows the customer charged $90,157.30 rather than $88,000.

Which vehicles the luxury car tax applies to

For LCT purposes a car is a motor-powered road vehicle designed to carry a load of less than 2 tonnes and fewer than 9 passengers, and it does not include motorcycles or similar vehicles. A limousine counts as a car regardless of how many passengers it is designed to carry.

Commercial vehicles are a separate case. The ATO describes commercial vehicles as designed for the principal purpose of carrying goods used for business or trade, and states that they are not subject to luxury car tax. Whether a particular vehicle meets that description is a question about its design, and worth confirming with the ATO for a specific model.

Age matters too. Luxury car tax applies to sales of cars that are two years old or less, so a nearly new prestige car still attracts the tax on resale. It also applies to a car bought by a person with a disability even where the car is GST-free, although the disability-related modifications themselves are not subject to it.

Luxury car tax threshold vs the car limit

The luxury car tax threshold is not the car limit. The car limit for 2026-27 is $69,883, and it caps the value you can use to calculate depreciation on a vehicle first used or leased for business purposes in that income year.

The two do different jobs, so neither figure is a version of the other. The car limit caps a depreciation deduction and a GST credit for a business vehicle. The luxury car tax threshold decides whether luxury car tax is charged on a sale, and it is tested against the LCT value, which includes GST.

The car limit also caps the GST credit. On a vehicle costing more than the car limit, the most you can generally claim is one-eleventh of the limit, which is $6,353 for 2026-27. Luxury car tax itself cannot be claimed as a credit, even where the vehicle is used for business.

What the threshold means when you are financing

Luxury car tax is charged on top of the price the threshold is tested against, so a car $10,000 over the threshold adds $3,000 to what you are charged, and therefore to what you finance, before any interest is calculated.

Where a car sits relative to the threshold changes what it costs. A variant at $82,000 that does not qualify as fuel-efficient attracts $357.30 of luxury car tax in 2026-27, and one at $80,500 attracts none, so the gap between those two variants is the $1,500 of price plus $357.30 of tax, or $1,857.30.

If you are comparing ways to pay for the car, our car loans page covers the options, and car loan vs lease and salary sacrifice cover two other structures.

This article is general information only and is not financial advice.