The Real Cost of Luxury Cars in Australia

You are behind the wheel of your dream car, the envy of every passerby.

But just as you are about to seal the deal, there is a surprise waiting for you—a tax that makes your luxury purchase even pricier. 

Welcome to the world of Luxury Car Tax (LCT), a cost that can take the shine off even the most dazzling vehicles.

What is the Luxury Car Tax?

LCT is not your typical tax—it’s a unique charge levied by the Australian Taxation Office (ATO) on vehicles that exceed a certain price threshold. Whether the car is new or nearly new (imported or manufactured within the last two years), LCT applies. The catch? It’s calculated on the portion of the car’s value that exceeds the government-set threshold.

For example, in the 2024–25 financial year:

• The threshold for fuel-efficient vehicles is $91,387.

• For all other vehicles, it’s $80,567.

Once your car crosses that line, the ATO takes a hefty 33% of the excess value—making an already premium purchase even more expensive.

Why Does LCT Exist?

LCT was introduced as a way to balance the scales. The idea? Encourage buyers to consider fuel-efficient or less extravagant options while ensuring that those who can afford luxury cars pay a little more into the system.

But here’s the thing: For most buyers, it feels more like a penalty for wanting a better car. Whether you’re after style, safety, or comfort, LCT doesn’t discriminate—it just adds to the price.

How Does LCT Affect You?

You might think, “Isn’t LCT something car dealerships or importers pay?” Technically, yes. But don’t be fooled—it’s a cost that gets passed straight down to you, the buyer. Dealerships factor it into the price tag, meaning you’re footing the bill whether you realise it or not.

Even if you’re importing your luxury car yourself, you’ll pay LCT directly to the ATO. Either way, it’s coming out of your pocket.

Let’s consider a scenario. Say you’re eyeing a luxury SUV priced at $100,000. For a non-fuel-efficient vehicle, here’s how LCT could apply:

1. Subtract the threshold of $80,567 from the car’s price: $100,000 - $80,567 = $19,433.

2. Remove GST from the excess amount by dividing by 1.1: $19,433 ÷ 1.1 = $17,666.36.

3. Apply the 33% tax rate: $17,666.36 × 0.33 = $5,829.90.

In this case, you’d pay nearly $6,000 in LCT alone—on top of the car’s base price, stamp duty, and other costs.

Are There Any Exemptions?

The good news is that not every luxury vehicle is subject to LCT. Here are some key exemptions:

Commercial Vehicles

Vehicles designed primarily to carry goods, not passengers, often escape LCT. Think utes or vans with a higher payload capacity.

Disability Modifications

Cars modified for individuals with disabilities may be exempt if the modifications push the car’s price above the LCT threshold.

Certain Used Vehicles

If LCT was already paid when the car was first purchased, you likely won’t pay it again on subsequent sales.

It’s worth exploring whether your dream car falls under these exemptions to save a significant chunk of change.

Final Thoughts

Luxury cars aren’t just about status; they’re an investment in style, comfort, and performance. But in Australia, the Luxury Car Tax is a reality you can’t ignore. Whether you choose to go all-in on a brand-new ride or explore the used car market, understanding LCT is the first step toward making a smart, informed decision.

So, before you sign on the dotted line, take a moment to reflect: Is the real cost of your dream car one you’re ready to pay?

With a little planning and a lot of research, you can cruise into the future without surprises—just the pure joy of driving the car you’ve always wanted.

Learn more and stay ahead with our insightful blogs:

https://cleartax.com.au/tax/specific-taxes-and-levies/luxury-car-tax/ 

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