What is luxury car tax (LCT)
When imported into the country, some cars are subject to luxury car tax (LCT). This tax applies to both businesses and individuals that import a luxury car or cars.
Luxury car tax is a tax that applies to cars that are valued above the LCT threshold (inclusive of GST). This tax applies to both businesses and individuals that import a luxury car or cars. Luxury car tax needs only be paid on a qualifying car if it was imported or manufactured in Australia within two years of the sale in question. LCT applies to all relevant vehicles above the threshold, which means it may even include the importing of an Australian-made vehicle manufactured within the past two years. The amount of LCT is calculated at a rate of 33 per cent on the amount above the LCT threshold1.
There are several circumstances in which the Australian luxury car tax does not apply. These include:
- A car that is (or is intended to be) used as an emergency vehicle, such as a firefighting vehicle, ambulance, search and rescue, or police vehicle.
- For modifications made for people with a disability
- For when an endorsed public institution such as a library, gallery or museum imports a car for public display, or sells a car used for public display to another endorsed public institution that intends to use the vehicle for public display.
- If the car was imported into the country more than two years before the sale in question.
- If the car was made in Australia more than two years before the sale in question.
- Vehicles that are campervans, motor homes, or commercial vehicles that are primarily designed to carry goods.
- When another individual has already paid LCT on the vehicle (unless the car has increased in value, in which case a relevant amount of LCT may need to be paid).
The ATO has a full list of situations where LCT does not apply2 on their website.
How much is the luxury car tax rate?
In Australia, a luxury car is any car that has a value (including GST) above the LCT threshold. For the 2020/21 financial year, the luxury car tax threshold is $77,565 for fuel-efficient vehicles and $68,740 for other vehicles3. This tax is GST-inclusive. Cars that are over this threshold will incur a tax rate of 33 per cent on the amount that exceeds the threshold. This threshold can change from year to year, so it’s best to look up the relevant year on the ATO website.
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How is luxury car tax calculated?
According to the ATO, the amount of luxury car tax payable is calculated by this formula:
(LCT value − LCT threshold) × 10 ÷ 11 × 33%
What is the purpose of luxury car tax?
The luxury car tax was introduced in 2000 by the Howard Government, in conjunction with the GST, replacing the Wholesale Sales Tax. It was designed in part to ensure foreign car imports did not become as affordable as locally-manufactured cars. The LCT was planned to support the automotive industry in Australia; however, there has recently been discussion on the relevancy of luxury car tax, due to the elimination of Australia’s car manufacturing industry4.
Please note that high end cars have special underwriting conditions attached to them or may not be able to be underwritten, depending on the value and import status.