Let’s face it, we’ve all dreamed of driving around the city in a Ferrari like a recent-retiree who may or may not be compensating for something. But you might change your mind on that when you learn just how heavily luxury cars are taxed in Australia.

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    What is the luxury car tax? 

    The luxury car tax (LCT for short) is a tax paid on some cars above a certain value (GST-inclusive). It’s mostly paid by businesses who sell or import luxury cars (like a car dealership), but can also be paid directly by individuals who import cars themselves. 

    The luxury car tax is 33% on the dollar amount of the car’s value that’s over the LCT thresholds, which, according to the Australian Taxation Office (ATO), are as follows:

    Financial year Fuel-efficient vehicles Other vehicles
    2020-21 $77,565 $68,740
    2019–20 $75,526 $67,525
    2018–19 $75,526 $66,331
    2017–18 $75,526 $65,094
    2016–17 $75,526 $64,132
    2015–16 $75,375 $63,184

    As you can see, the thresholds change in some capacity every year, and is higher for vehicles deemed as fuel-efficient (cars with fuel consumption less than seven litres per 100 kilometres), to encourage people to buy more environmentally-friendly cars. Simply put, a $70,000, non-fuel efficient car is $1,260 above the $68,740 threshold, so it will attract the LCT (33%) on that $1,260.

    The luxury car tax was first introduced by the Howard Government in the year 2000 alongside the Goods and Services Tax (GST), and has added more than $5 billion to the government’s coffers in the past 10 years. 

    So businesses pay the tax – why does that matter to me? 

    You might be wondering why the luxury car is relevant to the average car buyer such as yourself, since it’s the importer who pays the tax, not you, the customer. But the simple fact is you do pay it, because after being taxed 33% on the extra value of that car, the seller often passes on that extra cost to you. They typically do this by adding this substantial extra cost onto the purchase price of the car.

    You can be liable to pay the luxury car tax directly to the government if you import the car yourself, which can be both time-consuming and expensive. To do this you need things like an import approval, customs clearance, quarantine inspections and of course the transportation of the damn thing. In this instance, the luxury car tax is an extra cost you need to factor in.

    How to calculate luxury car tax 

    If the luxury car tax is applicable to the car you’re buying, then calculating the luxury car tax can be done using this formula:

    (Luxury car retail value – LCT threshold) x (10 ÷ 11) x (33 ÷ 100). 

    The important components of this formula are: 

    • The car’s retail value (including GST and customs duty, but excluding other Australian taxes and fees, such as stamp duty and registration) 
    • GST, which at the time of writing is 10%, and is represented by the (10/11) part 
    • The 33% tax rate, which is the (33/100) part 

    For example, let’s look at a car worth $80,000:

    The retail price of the car is $80,000, so the amount applicable to the LCT is $11,260 ($80,000 – $68,740). Multiplying this amount by 10/11 is $10,236, and then again by 0.33 is $3,378.

    Therefore, a luxury car with a retail value of $80,000 would cost the average punter $83,378, after factoring in the luxury car tax. 

    Let’s say we up the price to $500,000, if you’re feeling fancy. At $500,000, that car would attract an extra cost of around $130,000, thanks to the luxury car tax. So yeah, you could say it’s pretty expensive. 

    Calculating the tax this way is fairly simple, but if you don’t trust yourself with the numbers, then plenty of sites have LCT calculators available. 

    Luxury car tax in QLD & VIC 

    The tax structure listed above does apply to all imported luxury cars nationwide, but there can also be an additional tax depending on what state you live in. For example, Victoria recently proposed an extra luxury car tax of 7% for vehicles with retail prices over $100,000 and 9% for those over $150,000. Queensland too has an additional luxury car tax, with sellers being slugged with an extra $2 per $100 over a threshold of $100,000. 

    Federal Chamber of Automotive Industries (FCAI) Chief Executive Tony Weber has said the luxury car tax, and the additional tax proposed in Victoria, are “money grabbing at its worst”. 

    “But what’s more disturbing is that it is a tax on safety and technology.  It targets vehicles that introduce innovative safety and technical features to the market,” Mr Weber said. 

    “And the vehicle which attracts the most LCT is a Toyota Landcruiser – a popular vehicle for families and landholders. Hardly a luxury vehicle.”

    The FCAI argues the LCT is now redundant since there are no more major car manufacturers left in Australia after Toyota and Holden packed their bags and went elsewhere in recent years. 

    “The LCT actually penalises Australian consumers as it imposes unnecessary additional taxes on many vehicles which can in no way be described as luxury. The majority of people who pay the tax are average Australians who buy vehicles well under $100,000 to transport their families,” Mr Weber said. 

    “The FCAI fully supports a considered withdrawal from the Luxury Car Tax.  A graduated reduction of the tax over an agreed period, such as five years, could see the government end this inequitable taxation in a structured and responsible manner.”

    Are there any ways to avoid paying the luxury car tax? 

    As with any tax, there are always those who ask “how can I avoid paying it?” And yes, there are a few exceptions to paying the LCT. The most obvious is that it doesn’t apply to certain used vehicles or private sales, since the LCT will have already been paid when the car was first imported and sold.

    There’s an exception to this rule when the car is still under two years old and has actually increased in value. In this instance, a car bought from a dealer would still require LCT to be paid on the increase, but this is very unlikely as most cars are known to depreciate in value quite quickly. 

    The ATO lists some other exceptions to paying LCT, including: 

    • The car has been modified to be used for people with disabilities 
    • The car is a motorhome or campervan 
    • It’s a commercial vehicle designed for carrying goods 
    • The recipient has a quoted ABN 

    Luxury car tax is also waived in general on new cars that still haven’t been sold after two years. 

    Savings.com.au’s two cents 

    The luxury car tax is a bit of an unpopular tax at the moment, with many in the industry arguing it’s no longer necessary thanks to the absence of domestic car manufacturers now. The majority of cars in Australia are imported from overseas, which can make the LCT unavoidable when buying a new luxury vehicle. 

    Just remember that when you’re buying a nice car from a dealership, it will come with an added cost thanks to the luxury car tax. However, the 'driveaway price' often includes LCT anyway. Ultimately, the LCT could mean it’s worth reconsidering if it’s necessary to buy new or if you can buy a used car instead. Only in rare cases will a used car require a LCT, and they are cheaper than new cars in general.


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