The luxury car tax thresholds for 2026–27 have been updated, and it’s important 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.
The updated luxury car tax thresholds will apply from 1 July 2026 as part of the ATO’s annual vehicle-related threshold updates.
If you’re considering purchasing a vehicle in the new financial year, understanding these updated thresholds can help you avoid surprises and make more informed financial decisions.
Quick Summary
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Let’s break down what this tax is, who it affects, what’s changed for 2026–27, 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 2026–27 Luxury Car Tax Thresholds
From 1 July 2026:
- Fuel-efficient vehicles (those with fuel consumption not exceeding 7.0L/100km), the threshold is $92,494.
- All other vehicles, the threshold is $81,338.
The thresholds are GST-inclusive, and any amount paid above the applicable threshold is subject to the 33% luxury car tax.
The ATO also updates other vehicle-related limits each year, including the car limit and cents per kilometre rate. If you’re planning a vehicle purchase, read our guide to ATO Car Thresholds to understand the other changes taking effect from 1 July 2026.
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 is Luxury Car Tax Calculated?
Let’s look at a basic example to show how the LCT works under the new thresholds.
Example:
You purchase a non fuel-efficient vehicle for $95,000 (including GST). As this exceeds the 2026-27 threshold of $81,338, luxury car tax may apply.
The amount of luxury car tax payable will depend on the vehicle’s value and the ATO’s calculation method.
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 2026–27 Luxury Car Tax Thresholds
With the thresholds now set for 2026–27, there are a few smart strategies to minimise your exposure:
- Choose fuel-efficient models: Fuel-efficient vehicles benefit from a higher luxury car tax threshold, which may reduce the likelihood of LCT applying.
- Consider timing: The higher thresholds apply from 1 July 2026, so the timing of your vehicle purchase may influence whether luxury car tax applies.
- 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 purchasing or selling a luxury vehicle through a business, it’s important to 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.
Which Vehicles Might Fall Below the Luxury Car Tax Threshold?
Many modern electric vehicles, plug-in hybrids and hybrid vehicles may fall below the fuel-efficient luxury car tax threshold. However, vehicle pricing changes regularly, so it’s important to confirm the drive-away price and any optional extras before assuming luxury car tax won’t apply.
Frequently Asked Questions
What is the luxury car tax threshold for fuel-efficient vehicles in 2026–27?
The threshold for fuel-efficient vehicles is $92,494 from 1 July 2026.
What is the luxury car tax threshold for other vehicles in 2026–27?
The threshold for all other vehicles is $81,338 from 1 July 2026.
What is the luxury car tax rate?
Luxury car tax is charged at 33% on the value above the applicable threshold.
Does luxury car tax apply to business vehicles?
Yes. Purchasing a vehicle through a company, trust or sole trader structure does not automatically exempt the vehicle from luxury car tax.
Do electric vehicles pay luxury car tax?
Some electric vehicles may be subject to luxury car tax if their value exceeds the fuel-efficient vehicle threshold.
What Do the Luxury Car Tax Thresholds Mean for Your Next Vehicle Purchase?
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.
Need Help Understanding the Luxury Car Tax Thresholds 2026–27?
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.
Source: Australian Taxation Office, “Car thresholds from 1 July”, published 9 June 2026. The thresholds referenced in this article apply from 1 July 2026. https://www.ato.gov.au/businesses-and-organisations/small-business-newsroom/car-thresholds-from-1-july
