How to Calculate Luxury Car Tax in 2024

Luxury car tax (LCT) is a specific tax imposed by the Australian government on the sale and import of new luxury vehicles valued over a certain threshold. This tax is paid to the Australian Taxation Office (ATO) and applies to domestic sellers and importers. Generally, the sellers pass the cost of this tax on to the buyer, effectively increasing the purchase price of luxury vehicles.

The primary purpose of LCT is to target the purchase of new luxury cars, ensuring that high-value transactions contribute additional revenue to the government coffers. This tax was introduced in 2000 as part of a broader tax reform package and has been debated since.

When a new luxury car exceeds a certain value threshold, the amount exceeding this threshold is subject to a tax rate of 33%. This means that luxury vehicle buyers are paying a premium for the vehicle and taxes.

When do you need to pay luxury car tax?

Luxury Car Tax applies if you are importing or selling a vehicle valued above the LCT threshold, usually less than two years old. Both individuals and entities must pay this tax if specific conditions are met. Let’s break down the key factors:

Vehicle Type

LCT is primarily imposed on passenger vehicles with a load capacity of less than two tonnes and seating for fewer than nine passengers. This includes sedans, SUVs, and even some utes that fall within these weight and capacity limits. Limousines, despite often being large and luxurious, are also subject to LCT, as the seating capacity rule does not apply to them. Vehicles that are primarily designed for commercial purposes, such as trucks and vans, are generally exempt, unless they are heavily modified to function as luxury passenger vehicles.

Value Threshold

The Luxury Car Tax is only applicable when the vehicle’s total value—including dealer delivery fees and any optional extras—exceeds the Luxury Car Tax threshold set for that financial year. The threshold differs based on whether the vehicle is classified as fuel-efficient or non-fuel-efficient, with fuel-efficient cars enjoying a higher threshold before LCT is applied. It’s important to note that even if a vehicle is priced close to the threshold, adding extras like premium sound systems or custom interiors could push it into the LCT category, thereby increasing the overall cost.

Purpose of Purchase

LCT generally applies when the vehicle is intended for personal use, not if it’s purchased purely for display, as a collectible, or for museum purposes. These exemptions are rare and typically pertain to vintage or classic cars that are no longer used for regular driving. Additionally, any commercial vehicle such as trucks and vans, designed primarily for work purposes, are generally exempt from LCT, unless they have been modified for luxury passenger use. Buyers must provide proper documentation to qualify for these exemptions.

Disability Modifications

Vehicles purchased by individuals with disabilities may still be subject to LCT, but any modifications made to adapt the car for a disability are excluded from the taxable value. This exemption acknowledges the often high cost of making vehicles suitable for drivers or passengers with special needs, such as installing hand controls or wheelchair ramps. It provides financial relief by ensuring these essential modifications do not push a vehicle’s price further into the LCT threshold. Buyers should ensure that these modifications are documented appropriately to claim the exemption.

If a car fits these categories, you are liable to pay Luxury Car Tax on the amount exceeding the relevant threshold.

Value Thresholds for Luxury Car Tax

For the 2023-24 financial year, the thresholds have been set at the following levels:

• Fuel-Efficient Cars: $91,387.
• Non-Fuel-Efficient Cars: $80,567.

Historical Thresholds

The thresholds for LCT are indexed annually, adjusting with inflation and market shifts based on the indexation rate. Below are the thresholds from 2012-13 onwards:

What is a Fuel-Efficient Vehicle?

In the context of LCT, a fuel efficient vehicle is defined as a vehicle that consumes less than 7 litres of fuel per 100 kilometers on a combined cycle. These vehicles, because of their reduced environmental impact, qualify for a higher threshold before LCT is applied, offering a financial advantage to eco-conscious buyers.

How to Calculate Luxury Car Tax

To calculate LCT, you need to follow these steps:

1. Determine the Supply Price: This is the total price of the car, including optional extras, dealer delivery, and other charges.

2. Calculate the Amount Exceeding the LCT Threshold: Identify if the car is fuel-efficient and determine the relevant threshold. Subtract the threshold from the supply price to find the amount that exceeds the threshold.

3. Remove GST from the Excess Amount: Calculate the excess amount (the amount above the threshold) and remove the GST portion from this amount.

4. Multiply by the LCT Rate: The current LCT rate is 33%. Multiply the GST-exclusive excess amount by this rate.

Example Calculation

For example, if you are selling a non-fuel-efficient car with a supply price of $100,000, here is how you would calculate the LCT payable:

1. Supply Price: $100,000

2. Amount Exceeding LCT Threshold:

• Threshold for non-fuel-efficient cars: $76,950
• Amount exceeding threshold: $100,000 - $80,567 = $19,433

3. Remove GST from the Excess Amount:

• GST-exclusive excess amount: $19,433 / 1.1 = $17,666.36

4. Multiply by LCT Rate:

• LCT payable: $17,666.36 × 0.33 = $5,829.90

The luxury car tax payable for a non-fuel-efficient car with a supply price of $100,000 would be $5,829.90.

Conclusion

Understanding Luxury Car Tax is essential for anyone buying or selling luxury vehicles in Australia. It directly impacts the final price, especially for buyers of high-end cars. Awareness of how LCT is calculated and how thresholds shift over time can help consumers make more informed purchasing decisions and avoid unexpected tax burdens.

For sellers and importers, accurate calculation and collection of LCT are crucial for compliance with Australian tax laws. Keep in mind that thresholds and rates change annually, so it’s always best to consult with a tax professional or the ATO for the most up-to-date information.

While LCT can complicate the purchase of a new vehicle, knowing the details ensures transparency in the car-buying process, helping buyers budget appropriately and avoid surprises when finalizing a deal.

Frequently Asked Questions

• What is Luxury Car Tax?

  Luxury Car Tax (LCT) is a tax imposed by the Australian government on vehicles that exceed a set value threshold. It applies to cars designed for passengers with a load capacity under two tonnes and seating fewer than nine people. LCT adds 33% tax to the portion of the vehicle's price that exceeds the threshold, which varies for fuel-efficient and non-fuel-efficient cars. This tax is paid by car dealerships or importers but typically passed on to the buyer, making luxury vehicles more expensive. Introduced in 2000, LCT aims to ensure high-end purchases contribute additional tax revenue.

• How much is Luxury Car Tax?

  Luxury Car Tax (LCT) in Australia is charged at a rate of 33% on the value of a vehicle that exceeds the luxury car threshold. For the 2023-24 financial year, the threshold is set at $91,387 for fuel-efficient vehicles and $80,567 for non-fuel-efficient vehicles. The 33% tax only applies to the portion of the vehicle's price that exceeds these thresholds. The LCT is paid by dealerships or importers but is typically passed on to the buyer, increasing the total cost of high-end vehicles.

• What is the Luxury Car Tax threshold?

  The Luxury Car Tax (LCT) threshold sets the price limit beyond which LCT applies to a vehicle. For the 2023-24 financial year, the threshold is $91,387 for fuel-efficient cars and $80,567 for non-fuel-efficient vehicles. Any amount above these limits is taxed at 33%. The threshold includes the total price of the vehicle, dealer delivery fees, and optional extras. These limits adjust annually to account for inflation and other economic factors, so luxury car buyers should always check the latest threshold before purchasing.

• When does Luxury Car Tax apply?

  Luxury Car Tax (LCT) applies when the value of a new or imported passenger vehicle exceeds the LCT threshold, which is $91,387 for fuel-efficient cars and $80,567 for non-fuel-efficient cars in the 2023-24 financial year. The vehicle must carry fewer than nine passengers and have a load capacity under two tonnes. LCT is typically applied to cars used for personal use, while commercial vehicles and cars purchased purely for display or as collectibles are generally exempt. The tax is charged at 33% on the amount exceeding the threshold.