Luxury car tax (LCT) is a 33% tax on the part of a car's price that's above the luxury car threshold. For 2026–27 the threshold is $80,809 for most cars and $91,661 for fuel-efficient cars. Because the tax is worked out on the GST-exclusive part of the excess, LCT comes to 30% of every dollar of the GST-inclusive price above the threshold.
This guide covers the current thresholds, how LCT is calculated (with worked examples), who pays it, when it doesn't apply, the refunds available to primary producers and tourism operators, and how LCT links to the car limit and the FBT exemption for electric cars.
What is luxury car tax?
LCT is a federal tax administered by the Australian Taxation Office (ATO). It started on 1 July 2000, alongside the GST, and replaced the higher wholesale sales tax rate that used to apply to expensive cars. The rate was 25% at first and has been 33% since 1 July 2008.
LCT applies to a luxury car: a car whose LCT value is above the luxury car threshold. For LCT purposes a car is a motor vehicle designed to carry a load of less than 2 tonnes and fewer than 9 passengers (motorcycles aren't included; limousines are always cars).
LCT thresholds for 2026–27
There are two thresholds, and they're indexed each financial year:
- 2026–27 (from 1 July 2026): $91,661 for fuel-efficient cars; $80,809 for other cars
- 2025–26: $91,387 for fuel-efficient cars; $80,567 for other cars
From 1 July 2025, a car only counts as fuel-efficient if its combined fuel consumption is 3.5 litres per 100 km or less (it was 7 litres per 100 km before then). In practice that means battery electric cars and some plug-in hybrids; conventional petrol, diesel and most standard hybrid cars now use the lower threshold. From the same date, both thresholds are indexed using the same measure (the motor vehicle purchase index), so they now move together. For 2026–27 the indexation factor was 1.003.
How LCT is calculated
For a sale, the ATO formula is:
LCT = (LCT value − LCT threshold) × 10/11 × 33%
The LCT value is generally the car's price including GST but not including the LCT itself or other Australian taxes and charges such as stamp duty, registration and compulsory third party insurance. It includes options and accessories supplied with the car. The 10/11 takes the GST out of the excess, so LCT is charged on the GST-exclusive amount above the threshold. GST isn't charged on the LCT.
Since 10/11 × 33% = 30%, a quick way to estimate LCT is to take 30% of the GST-inclusive amount above the threshold.
Example 1: petrol car for $120,000
A petrol SUV has an LCT value of $120,000 in 2026–27. It isn't fuel-efficient, so the $80,809 threshold applies. The excess is $39,191; $39,191 × 10/11 = $35,628.18; × 33% = $11,757.30 LCT.
Example 2: electric car for $120,000
A battery electric car with the same $120,000 LCT value qualifies as fuel-efficient, so the $91,661 threshold applies. The excess is $28,339; × 10/11 = $25,762.73; × 33% = $8,501.70 LCT.
Example 3: a $90,000 car
At an LCT value of $90,000, a petrol car is $9,191 over the $80,809 threshold, so LCT is $9,191 × 10/11 × 33% = $2,757.30. A battery electric car at the same price is under the $91,661 fuel-efficient threshold, so no LCT is payable.
Imported cars have their LCT value worked out differently, from the import value of the car; see the ATO's guide to working out the LCT on an import.
Who pays LCT?
LCT is paid by businesses that sell or import luxury cars, mainly dealers, and by individuals who import a luxury car. A business that is registered (or required to be registered) for GST and sells a luxury car in the course of its business reports and pays the LCT on its business activity statement (or on its annual GST return if it reports GST annually). A private importer pays LCT to the Department of Home Affairs when the car is imported.
Buyers don't pay LCT to the ATO directly, but dealers build it into the price, so it shows up in the drive-away cost of the car. Stamp duty is a separate state charge; see our guide to stamp duty on cars.
Second-hand cars
LCT only applies to cars that are 2 years old or less (measured from when the car was manufactured in, or imported into, Australia). A private sale by someone who isn't selling in the course of a GST-registered business isn't caught. If a dealer resells a car that is 2 years old or less and LCT has already been paid on it, LCT is only payable again if the value has gone up, and the earlier LCT is deducted.
When LCT doesn't apply
LCT generally doesn't apply to:
- Commercial vehicles: vehicles designed for the principal purpose of carrying goods rather than passengers, such as trucks and cargo or delivery vans. Some utes qualify and some don't, depending on their design.
- Motor homes and campervans.
- Emergency vehicles: cars registered (or intended to be registered) as emergency vehicles, such as ambulances, fire-fighting, police and search and rescue vehicles.
- Cars more than 2 years old.
- Purchases made by quoting an ABN: for example, a dealer buying a car as trading stock. LCT becomes payable if the car is later used for another purpose.
- GST-free exports of luxury cars.
There's no general LCT exemption for people with disability. However, the cost of modifications made to a car for a person with a disability is left out of the LCT value.
LCT refunds for primary producers and tourism operators
GST-registered primary producers and tourism operators can claim a refund of LCT paid on an eligible vehicle, up to $10,000 per vehicle:
- Primary producers: one eligible vehicle per financial year.
- Tourism operators: each eligible vehicle, if it's used solely in the tourism business (taxi, limousine and hire-car services don't count).
Eligible vehicles are four-wheel drive or all-wheel drive cars that meet set vehicle categories, such as a passenger car with ground clearance of at least 175 mm or an off-road passenger vehicle. The refund is claimed on a separate application for luxury car tax refund, not on the BAS, generally within 4 years.
LCT, the car limit and FBT: three different numbers
Business car buyers often confuse the LCT thresholds with the car limit. They're separate:
- Car limit ($69,883 for 2026–27): the most you can use as the car's cost for depreciation, and it caps the GST credit on a car purchase at one-eleventh of the limit ($6,353). It applies to fuel-efficient cars too.
- No credit for LCT: a business can't claim a GST credit for LCT it pays when buying a luxury car, however much it uses the car for business.
- FBT electric car exemption: an eligible zero or low emissions car provided to an employee can be exempt from FBT, but only if LCT has never been payable on it. In practice the car's value has to be under the fuel-efficient threshold ($91,661 for 2026–27) at its first retail sale. Plug-in hybrids stopped qualifying from 1 April 2025, apart from some existing arrangements.
For more on claiming a business car, see our guide to motor vehicle expenses, and for electric cars, our article on the EV fringe benefits tax exemption.
Sources: ATO, Luxury car tax rate and thresholds; ATO, Working out the LCT on a sale; ATO, When LCT doesn't apply; ATO, Definitions - luxury car tax; ATO, LCT credits and refunds; ATO, Purchasing a motor vehicle; ATO, Electric cars exemption.
Need a hand with a car purchase?
Whether you're a dealer working out LCT on your BAS, a farmer or tourism operator claiming an LCT refund, or a business owner weighing up a new car, we can help you get the numbers right. Call us on 0488 854 200, contact us or book an appointment.
How do I get help with this from the ATO?
The ATO provides guidance through ato.gov.au, the Small Business Support Line (13 28 66), and Online Services for individuals and businesses. For complex situations, a registered tax agent provides advice tailored to your specific circumstances and professional indemnity protection. You can verify agent registration at the TPB register at tpb.gov.au.
What records do I need to keep for tax purposes in Australia?
Most tax records must be kept for five years from the date of lodgement or the date the transaction occurred, whichever is later. Records must be in English or convertible to English and must be sufficient to explain the income and deductions in your return. The ATO can request records at any time during the retention period.
When do I need a registered tax agent in Australia?
Consider a registered tax agent when your affairs involve multiple income sources, business activity, investment properties, capital gains, or overseas income. Agents extend your lodgement deadline, provide safe harbour protection, and take professional responsibility for the advice given. Verify registration at tpb.gov.au.
How does the ATO calculate penalties for compliance failures?
The failure to lodge penalty is based on penalty units ($364 per unit from 1 July 2026), accruing per 28-day period for late returns and BAS lodgements. Incorrect information penalties range from 25% to 75% of the tax shortfall depending on whether the behaviour was careless, reckless, or intentional. Proactive disclosure before an audit begins typically results in significantly reduced penalties.
What is the difference between tax avoidance and tax minimisation?
Tax minimisation is the legal arrangement of your affairs to reduce tax — claiming all eligible deductions, using appropriate structures, and timing income and expenses. Tax avoidance involves arrangements that technically comply with the law but achieve outcomes parliament did not intend. The ATO can apply Part IVA anti-avoidance rules to cancel benefits from avoidance arrangements.
