Indirect taxes
Luxury car tax (LCT)
Luxury car tax is a 33% tax on the part of a car's value above the luxury car tax threshold, paid by the dealer or importer and usually built into the price.
Luxury car tax, or LCT, is a federal tax charged on cars with a value above a threshold set by the ATO. The rate is 33% of the value above the threshold, with an adjustment so that it is calculated on the amount excluding GST. It applies to the supply or importation of luxury cars and is generally paid by the dealer or importer, who passes the cost on in the price you pay.
The threshold changes each year, and a higher threshold applies to fuel-efficient vehicles. Because the figures are indexed and reviewed, you should check ato.gov.au for the current thresholds rather than relying on an old number. The tax applies to cars designed to carry fewer than nine passengers, not to commercial vehicles such as most utes and vans designed for goods.
The formula is LCT equals the value of the car above the threshold, multiplied by 10/11, multiplied by 33%. The 10/11 factor removes the GST component, which means LCT is calculated on the GST-exclusive part of the excess. For a car whose value is below the threshold, no LCT is payable. The LCT value includes certain accessories and the GST, but excludes some items such as registration and stamp duty.
A GST-registered dealer reports and pays LCT in its BAS. An individual buyer does not lodge anything for LCT on a normal purchase, since the cost is embedded in the sticker price. However, if you import a car yourself or buy one in some special circumstances, you may need to deal with LCT directly. The ATO website explains the situations in which a buyer must register or pay.
For businesses buying a car, LCT does not directly reduce the GST credit, but a separate limit does. The car limit applies to GST credits and depreciation on cars, and luxury cars often exceed it. This means an expensive car can have high LCT but only a capped GST credit and capped depreciation, which affects the true after-tax cost.
Common misunderstandings include thinking LCT only applies to sports cars, and thinking it can be claimed as a credit. In general it cannot. It can also apply when a car is sold outright and when a business sells a luxury car it previously imported. This is general information only, so confirm your situation with the ATO or a registered tax professional.
Worked example
Assume, purely for illustration, that the LCT threshold is $80,000 and a dealer sells a car with an LCT value of $100,000. The excess is $100,000 - $80,000 = $20,000. LCT = $20,000 x 10/11 x 33% = $18,181.82 x 0.33 = $6,000. The dealer pays this in its BAS and the cost is passed on in the price.
Practical tips
- Check the current LCT threshold, including the higher fuel-efficient threshold, on ato.gov.au, as it changes each year.
- LCT is usually built into the price, so ask the dealer to confirm it is included.
- Remember the car limit also caps GST credits and depreciation on expensive cars, separate from LCT.