Luxury car tax

Buying a premium new car (over $90,000) comes with a number of benefits – comfort, driving pleasure, status, the list goes on. However, the purchase of luxury vehicles also comes with additional costs, one of which is Luxury Car Tax (LCT).

Here are the key features of the tax system when dealing with luxury vehicles and the impact it may have on your tax position.  

Depreciation deductions and GST credits for non-luxury vehicles 

When you purchase a motor vehicle (of the non-luxury kind) for business purposes, you will be able claim a depreciation deduction over the useful life of the vehicle. The maximum amount that can be claimed as a depreciation deduction for a vehicle purchased in the 2026 financial year is $69,674. This is known as the car cost limit.

In addition to a depreciation deduction, if your business is registered for GST, you may be entitled to claim a refund of a portion of the GST paid on the purchase of the vehicle. It is important to note that any GST claim on the purchase of a work-related vehicle is also subject car cost limit and the maximum GST claim for the 2026 Financial Year is limited to $6,334. 

As LCT is only relevant for vehicles that are above the car cost limit, it is important to note that this cost will be 100% non-deductible. 

How does it work and what makes it a “luxury car.” 

A luxury vehicle is not determined by the leather seats or Bluetooth system. It is based on the sale price only.  

The ATO has an annual luxury car cost threshold. If the cost of the vehicle is above that threshold, then it is considered a luxury vehicle, and LCT will apply. The dealer is responsible for calculating reporting and paying the LCT to the ATO. It is then passed on to the consumer and included in the sale price. 

When does the luxury car tax take effect? 

The luxury car tax (LCT) affects vehicles with a sale price over the LCT threshold. The amount above the threshold is then taxed at a flat rate of 33%. 

For example, a fuel-efficient car which falls into the scope of LCT rules which costs $110,000 including GST, will cost you an additional $5,584 in luxury car tax.  

The LCT thresholds for the 2025-26 income year are: 

• $91,387 for fuel-efficient vehicles 
• $80,567 for all other vehicles that fall within the scope of the LCT rules. 

Of course, like all things tax related, there are exemptions, varying eligibility requirements, and other considerations to take into account. For example, if you are a primary producer registered for GST, you may be entitled to claim a refund of LCT up to $10,000. 

If you would like assistance with the tax implications of your new vehicle, please feel free to contact us prior to committing to your purchase.

Published 04/09/2025