The Luxury Car Tax applies to the difference between the price and threshold set by the ATO currently $91,387 for fuel efficient and $80,567 for other vehicles. The current Luxury Car Tax (LCT) rate is 33%, some exemptions do apply, thresholds vary for cars and fuel-efficient models, and the threshold applies to the year the vehicle was imported or sold. LCT applies to the importers/sellers of the vehicles with the cost included in the price paid by buyers. Commercial vehicles are exempt from LCT.
The threshold is adjusted for vehicles each financial year, with higher threshold for fuel efficient vehicles to encourage take-up of new fuel technology vehicles. At the current thresholds, LCT impacts many brands and models, especially from European manufacturers such as Porsche, Audi, BMW and Mercedes-Benz. But models from many other brands coming out of Asian markets may also be subject to LCT.
With the current global tariff environment, media reports have mentioned that the Albanese Government is intending to abolish LCT as part of free trade negotiations with the EU. The decision would make sense when considered, not only in the context of the current global tariff and trade conversations, but in the context of why it was first introduced.
One of the major reasons that countries impose taxes or tariffs on imported goods is to protect their own industries. At a time when Australia had a significant auto manufacturing sector, the LCT, which dates back to around 1999, was seen as a form of protection for locally built vehicles. But now, with vehicle manufacturing no longer happening in Australia, the reasons for continuing LCT seem to have gone the same way – disappeared. There is of course the revenue generated by the tax for the Government to consider, but a free trade agreement with the EU may open up opportunities for many Australian producers, especially in the agricultural sector, to be more competitive in European markets.
So, will it happen and if so, when? That we will have to wait for. The Prime Minister has decided to recall Federal Parliament in July, when the newly elected Senate is in place. As LCT was enacted under the New Tax System (Luxury Car Tax) Act of 1999, it would be presumed that it would take an Act of Parliament to change or abolish that Act.
While we await the decision, we explain what LCT is, how it impacts the price of motor vehicles, and what buyers may save on some new vehicles if it is discontinued.
What is the Luxury Car Tax?
LCT is a tax at the rate of 33% on vehicles imported with pricing above the set threshold for the year of importation/sale. The thresholds are adjusted each year for vehicles imported in that year, reflecting price increases. Importers and sellers must pay the tax. The taxable portion is the difference between the selling price including GST and the threshold. Not on the entire selling price.
The ATO definition of luxury cars for LCT purposes are motor-powered vehicles for the road, with load capacity of under 2 tonnes and 9 passenger maximum capacity. Motorbikes are not included in LCT. The definition of fuel-efficient vehicles was re-defined from 1 July 2025 to be vehicles with fuel consumption not exceeding 3.5 litres per 100klms. Commercial vehicles are defined as those vehicles for the main purpose of transporting goods and used for trade or in a business. Commercial vehicles are exempt from LCT.
As mentioned above, the LCT thresholds for vehicles imported/sold in 2024/25 is $80,567 for what the ATO describe as ‘other vehicles’, and $91,387 for vehicles under the relevant definition for fuel-efficient models. As anyone in the market for a new vehicle will quickly realise, LCT increases the price they are paying significantly.
Financing Luxury Cars
Abolishing the luxury car tax should see prices of many models fall significantly. But buyers should beware of the timing of Government changes to the relevant Act, and which year of import/sale of particular models any change would affect. Some models where the LCT has been applied and paid by the importer may not see the LCT reversed. Any change may apply to vehicles imported after a certain date in the future.
From a financing perspective, the lower the price the smaller the loan required and the lower the repayments. Buyers don’t pay extra for LCT, it is already included in the advertised price of the vehicle. This makes working out how much may be saved using our Finance Calculator may be complex. But rough figures may be used to work up estimated repayments on personal and business vehicle financing using the calculator.
If requiring finance for vehicles currently subject to Luxury Car Tax, contact Jade Car Loans 1300 000 003 for affordable personal and business car loans.
DISCLAIMER: IN REGARD TO MISREPRESENTATIONS AND ERRORS CONTAINED IN THE MATERIAL AS PRESENTED, LIABILITY IS NOT ACCEPTED. THE DETAILS AND CONTENT IS PROVIDED FOR CAR BUYERS AND INDIVIDUALS AND BUSINESS SEEKING FINANCE PURELY AS GENERAL INFORMATION. THIS IS NOT PROVIDED AS THE ONLY SOURCE OF FINANCIAL INFORMATION. ANYONE THAT CONSIDERS THAT NEED FINANCIAL ADVICE ABOUT THEIR SPECIFIC REQUIREMENTS SHOULD SEEK THEIR OWN FINANCIAL ADVISOR.
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