Australia’s luxury car tax thresholds have been updated for the 2024–25 financial year, and it’s more important than ever for car buyers, dealerships, and business owners to understand how these changes could impact purchasing decisions. Whether you’re thinking of buying a luxury vehicle or managing fleet purchases, getting familiar with the updated luxury car tax thresholds can help you avoid unexpected costs and make better financial choices.
Let’s break down what this tax is, who it affects, what’s changed for 2024–25, and how you can best prepare.
What is the Luxury Car Tax?
The luxury car tax (LCT) is a tax applied by the Australian Government on vehicles that exceed a certain threshold in value. LCT is designed to target high-end vehicles, applying an additional 33% tax on the amount above the threshold. It’s important to understand that LCT is paid by businesses that sell or import luxury cars (not by consumers directly), but the cost is almost always passed on to the buyer.
Why the LCT Thresholds Matter
Every year, the ATO adjusts the luxury car tax thresholds based on inflation and economic trends. These changes affect which cars are subject to LCT and how much tax is ultimately paid. For buyers considering a high-end vehicle, understanding the thresholds ensures they can budget correctly or choose alternatives that might fall under the limit.
The 2024–25 Luxury Car Tax Thresholds
From 1 July 2024:
- For fuel-efficient vehicles (those with fuel consumption not exceeding 7.0L/100km), the threshold is $91,387.
- For all other vehicles, the threshold is $76,950.
The thresholds are GST-inclusive, and any amount paid above the applicable threshold is subject to the 33% luxury car tax.
What Qualifies as a Fuel-Efficient Vehicle?
Not every hybrid or electric car automatically qualifies as fuel-efficient under LCT rules. The vehicle must:
- Have a combined fuel consumption rating of 7.0 litres per 100 kilometres or less, based on the Australian Design Rules (ADR).
- Be a passenger car (including station wagons), not commercial or heavy vehicles.
If you’re unsure whether a particular model qualifies, it’s worth checking with the manufacturer or referring to the Green Vehicle Guide.
How the LCT is Calculated
Let’s look at a basic example to show how the LCT works under the new thresholds.
Example: You purchase a luxury car (non fuel-efficient) for $90,000 (including GST). The threshold for non-fuel-efficient vehicles is $76,950. That means $13,050 is subject to the 33% LCT.
LCT Payable = 33% x $13,050 = $4,306.50
If you’re buying a fuel-efficient vehicle valued at $89,000, you would not pay any LCT, as it falls below the fuel-efficient threshold of $91,387.
Luxury Car Tax Thresholds for Business Purchases
If you’re running a business and purchasing a vehicle, especially through a trust, company, or sole trader structure, these thresholds are crucial to planning capital expenditure. While businesses can often claim GST credits on the portion of the vehicle under the car limit, LCT is a separate tax that still applies if the vehicle’s cost exceeds the threshold.
Vehicles purchased under novated lease arrangements may also be impacted, so it’s worth speaking with your tax adviser.
Exceptions and Exemptions
There are limited exemptions from LCT, including:
- Vehicles specifically modified for people with disabilities
- Certain commercial vehicles that are not designed for passenger use
- Vehicles imported by diplomats or under special government programs
However, most luxury vehicle purchases are subject to LCT unless they clearly meet exemption criteria.
Planning Around the Luxury Car Tax Thresholds
With the thresholds now set for 2024–25, there are a few smart strategies to minimise your exposure:
- Choose fuel-efficient models: With a higher threshold, more hybrid and electric models are LCT-free.
- Consider timing: If your car purchase can be delayed until the new financial year, you might benefit from a higher threshold.
- Be mindful of accessories: Fitted extras and modifications can push a car over the threshold. Make sure to include all on-road costs in your total purchase price.
- Talk to a tax expert: Cotchy can help assess whether a purchase is subject to LCT and assist with structuring transactions to minimise tax.
LCT and Instant Asset Write-Offs
It’s important to note that even if you’re eligible for the instant asset write-off or temporary full expensing, this doesn’t exempt you from LCT. If your vehicle exceeds the threshold, the LCT still applies regardless of how you depreciate the asset.
Record Keeping and LCT
If you’re a business or dealer who sells luxury vehicles, you must keep detailed records of:
- Vehicle pricing (including GST)
- Whether the vehicle is fuel-efficient
- Accessories and modifications
These records help ensure LCT is calculated and reported correctly to the ATO.
Fuel-Efficient Models That May Fall Below the Threshold
Given the shift to electric and hybrid vehicles, more models fall under the $91,387 threshold. Examples might include:
- Tesla Model 3
- Hyundai IONIQ 5
- Toyota RAV4 Hybrid (top specs)
These vehicles offer premium features without tipping over the LCT limit.
Final Thoughts on Luxury Car Tax
While LCT often feels like a hidden cost, understanding how thresholds work can help you make smarter buying decisions. Whether you’re shopping for a new company vehicle or upgrading your ride, factoring in the LCT impact could save thousands.
Understanding Luxury Car Tax Thresholds
If you’re planning a new vehicle purchase and want expert advice on how the luxury car tax thresholds might affect you, get in touch with our team today. Our experts are ready to walk you through the luxury car tax thresholds and help you make tax-smart decisions.