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What is a luxury car tax? Your guide to LCT with Handy Finance

Are you in the market for a new car? If you’ve just started your search, you may be coming across the term ‘luxury car tax’. What is luxury car tax, and how much exactly is it? Read on to explore what luxury car tax is, how it is calculated, and whether it applies to the car model you’re considering buying. 

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Understanding the Luxury Car Tax

In Australia, there is a luxury car tax (LCT). This tax is applied to cars with a GST-inclusive value above the LCT threshold, which the Australian government sets. The LCT applies to all vehicles that are two years old or less – either manufactured here less than two years ago or imported less than two years ago. LCT is applied to both locally-made and imported luxury cars. 

The luxury tax threshold can change, and the Australian Taxation Office website is the best place to check the threshold each financial year

So, how much is the luxury car tax? Currently, the LCT rate is applied at 33% of a car’s value above the luxury car threshold. For example, if a car costs $10,000 above the threshold set, the additional tax on that car would be $3,300 – 33% of $10,000. 

You are responsible for paying this tax – either as an individual importing the car or via the dealership, who will add the LCT to the final price of the vehicle. 

There are two thresholds – one for fuel-efficient cars and another for other cars. The government updates the threshold manually from year to year, as they base these thresholds on inflation or other changes in the market.  

What cars are subject to the luxury car tax?

Now that we know what an LCT is and how much it can come to, it’s time to explore what vehicles it usually applies to. Is it applicable to new vehicles only? Do you pay luxury car tax on a used car?

Just because your car is high-priced doesn’t mean it will automatically be subject to LCT. The luxury car tax is applied to vehicles that carry passengers. So, if you are buying a car that will be used for carrying goods or business purposes, you may be exempt. This can extend exemptions to cars like utes, trucks, vans or buses.  

Another common exemption has to do with imported luxury cars. If you’re purchasing an imported car over two years old when it arrived in Australia, you will be exempt from paying the luxury car tax on the vehicle. 

Exemptions to the LCT

The Australian Tax Office is the authority on the luxury car tax, including any exemptions from paying the tax. Here are some scenarios where LCT may not apply to your vehicle purchase:

  • If the buyer has a current ABN and will use the car specifically for business purposes, LCT will not apply.
  • LCT will not apply if the car is over two years old or was imported to Australia more than two years before the sale. LCT has most likely already been paid in these situations. 
  • Is the car registered to be used as an emergency vehicle? LCT will not apply to any cars marked as ambulances, firefighting, police cars, or search and rescue vehicles. 
  • Modifications to the car to accommodate people with a disability are not subject to LCT, even if the vehicle is. 

It’s best to assume that you must pay the luxury car tax until you can dive further into any exemption and rebate options. The ATO has further guidelines regarding exemptions that you can explore. 

Calculating the luxury car tax 

Here are the most recent LCT thresholds set by the Australian government. These prices are inclusive of GST: 

Financial yearFuel efficient vehiclesOther vehicles
2023–24$89,332$76,950
2022–23$84,916$71,849
2021–22$79,659$69,152
*Source: https://www.ato.gov.au/tax-rates-and-codes/luxury-car-tax-rate-and-thresholds 

You can see from the table how the luxury car tax has changed in the last four years. If you’re in the market for buying a luxury car, this table will be your best guide. You can use this to plan and budget at the research stage to ensure you stick below the budget or take into account a 33% increase in price when sorting your car financing options. 

How does LCT affect car prices and consumer choices?

The luxury car tax is based on price rather than the car’s make, model, or special features. This is why you can’t assume sports cars or luxury car brands automatically fall into this category – nor that more run-of-the-mill family car brands won’t attract this tax. 

Being properly informed on what luxury tax is and how much luxury tax is will help you to make a better purchasing decision. You can use the threshold and various exemptions to inform the choices around what kind of car you buy. 

Frequently asked questions

Does the luxury car tax apply to used cars?

Luxury car tax only applies to eligible vehicles under two years old. This starts from the date they were imported into Australia or manufactured here. If you purchase a luxury car within those first two years, LCT will apply it if it has increased in value. 

How does the luxury car tax affect imported vehicles?

Luxury car tax wouldn’t affect your imported vehicle if the car were imported to Australia more than two years before the sale. You don’t need to pay LCT again if this has already been paid when the vehicle was first imported. 

Can businesses claim a luxury car tax exemption or reduction?

The ATO is the best source for exemptions or reductions on the luxury car tax. According to the ATO, if you are buying and using the car for a specific purpose related to your business, LCT does not apply. You must have a registered and current ABN at the time of purchase for this to apply. Workers in specific primary industries, or those working in tourism, may also be eligible for exemption if they use a car. Contact the Australian Tax Office for more information on this particular exemption. 

What are the criteria for claiming an exception for vehicles modified for people with disabilities?

LCT doesn’t apply to any modifications made to a car with the purpose of adapting it to be driven by a person with a disability or adapting it for transportation of a person with a disability (such as a wheelchair modification). LCT can still apply to the car purchase itself. It is best to check in with the ATO regarding specific criteria for claiming exemptions. 

How do I claim a rebate or exemption from the luxury car tax?

Once you’ve confirmed via the ATO site that you are eligible for an exemption or rebate, you must fill out and submit the necessary declaration or application forms. These can all be found on the ATO website and include lists of any supporting documentation that may be required. 

Contact the ATO or ask a professional tax expert for the most accurate and specific information. You can also look at the ATO website for more details on when LCT doesn’t apply

Can I take out a car loan to cover the cost of the luxury car tax?

You absolutely can. At Handy Finance, we offer flexible, secured car loans. You can use the money from your car loan to pay off the car and tax. The main purpose of a car loan should always be buying the car. If you’d like a loan to cover the luxury car tax specifically, apply for a personal loan, as the loan terms are more flexible and fit any purposes. 

Use the car loan calculator to gauge an estimate of what your car loan terms might be – how much you can borrow, what interest rate you’ll be offered, and what your weekly, fortnightly or monthly repayments will look like. It’s an excellent way to consider your loan’s level of financial commitment. 

Explore car financing from Handy Finance

Being fully informed about extra costs is essential when buying new vehicles in Australia. This is why it is important to understand what a luxury car tax is and how much it could cost you before investing in a new or secondhand car. Once you know the tax, thresholds, and whether you’re eligible for any exemptions, you can proceed and secure the best car for your needs. 

At Handy Finance, we provide fair and affordable car loan options. You can apply for a loan of between $2,001 and $75,000, with terms of between one and seven years. Our secured car loans are tailored to your specific needs and financial situation – repay in weekly, fortnightly or monthly instalments, whatever works best for you. Whether you’re looking to cover the full cost of your new car or just the LCT applied to it, our credit experts can help. Contact the team today to learn more about our range of vehicle loans, including caravan and motorcycle loans.