What is the Luxury Car Tax?

Back to top

What’s the luxury car tax?

Who pays the luxury car tax?

How does the luxury car tax work?

How to calculate the luxury car tax

Are there any exemptions from paying the luxury car tax?

What car insurance should I get for a luxury car?

Long story short

Luxury car tax (LCT) applies to vehicles priced above a certain threshold

For 2025–26, the threshold is set at $80,567 for standard cars and $91,387 for fuel-efficient ones.

Usually the dealer pays LCT, but it gets passed down to the buyer when the vehicle is sold

If you’re importing a vehicle yourself, you’ll need to pay it directly.

Some vehicles are exempt from the LCT

Commercial or emergency vehicles, and certain ABN-registered buyers, might not be taxed.

What’s the luxury car tax?

In Australia, a luxury car is a vehicle whose value is higher than a set threshold. In 2025–26, that’s $80,567 for conventional cars or $91,387 for fuel-efficient ones. Vehicles valued over this threshold have an extra tax applied to them, known as the luxury car tax. 

The tax generally applies to new cars, but there’s one exception. It can also apply to pre-owned cars less than two years old – as long as they’ve previously been subject to the tax, and they’ve increased in value. 

Introduced in 1999, the luxury car tax took effect in July 2000 to encourage people to buy locally made cars. While the LCT brings in hundreds of millions of dollars in tax revenue each year, there are questions around its relevance, considering local car manufacturing ended in 2017. The Federal Government is reportedly considering phasing out the tax. (Axing it in one hit is off the table because it would damage the resale values of currently owned luxury vehicles).

Who pays the luxury car tax?

If you’re buying from a dealer, they’ll take care of the tax-paying part, but that’s not the end of the story. Inevitably, the dealer’s costs get passed along to you in the price you pay for the car. 

If you’re importing a luxury car from overseas yourself, the tax is on you. 

In other words, whoever imports the car pays the tax. The tax gets paid to the Department of Home Affairs when the car goes through customs. 

How does the luxury car tax work?

To understand how the luxury car tax (LCT) works in Australia, you’ll have to be clear on two basic things. 

Helpful tip

If you’re considering buying a car, it could be an investment worth protecting. For example, if your brand-new car becomes a total loss within, say, the first two years you’ve owned it, a comprehensive car insurance policy with new-for-old replacement car cover might be able to replace it with like for like (or similar) make and model, provided certain policy conditions are met.

Adrian Bennett

General Manager for General Insurance

How to calculate the luxury car tax

Calculating the luxury car tax is a question of simple maths. If you’re interested in what goes into the price you pay, or if you’re looking at cars valued around the threshold, it’s definitely worth knowing.

Fictional example: Yash decides whether to splash the cash on a luxury car

Yash was tossing up whether to buy a brand-new, high-end Porsche like he’d always dreamed. He was (almost) willing to splurge, but he also wanted to be sure what he was paying for, specifically the luxury car tax (LCT) bit. 

Here’s what someone in Yash’s position would typically do. 

Step 1. Subtract the threshold from the LCT value. 

$131,400 - $80,567 = $50,833

Step 2. Remove the GST by dividing the result by 1.1. 

$50,833 ÷ 1.1 = $46,212 

Step 3. Apply the LCT rate of 33% to find the LCT that needs to be paid. 

$46,212 x 0.33 = $15,250

Feeling a little more informed, Yash reconsidered his plan and decided to put the money towards his mortgage instead. Had he been a luxury car dealer, calculations like this would’ve been a day-to-day thing. But you do you, Yash! 

Are there any exemptions from paying the luxury car tax?

Yes, there are general exemptions (not loopholes!) that might help you avoid paying a luxury car tax. These could include: 

• cars older than or imported more than two years ago that haven’t been sold
• commercial vehicles designed to carry goods or more than eight passengers
• emergency vehicles, motor homes, campervans, or vehicles modified for people with disabilities
• extras purchased and installed after buying the vehicle. 

If you have an ABN and you’re registered for GST, you might not need to pay the tax if you intend to use the vehicle for one of the following reasons: 

• to hold the vehicle as trading stock (except for lease or hire)
• to conduct research and development for the vehicle’s manufacturer
• to export the vehicle without paying GST. 

You might also be able to claim a full or partial refund of any luxury car tax you’ve paid on an eligible vehicle if you’re a tourism operator or a primary producer involved in farming, fishing, or similar.

What car insurance should I get for a luxury car?

Safe to say, luxury cars are in a league of their own. That means you might need to opt for specialised luxury car insurance which we, unfortunately, don’t compare.

That said, there’s a good chance that some cars might cross the ATO’s luxury car threshold even if they don’t bear the ‘luxury car’ badge (thanks, inflation!). If you happen to be considering a car that fits this description, we can help. Just use our car insurance comparison tool to compare policies from our range of providers and go with the one you want.