You’ve bought the car of your dreams after negotiating the price like a pro. You think you’re done and dusted until you receive the final invoice and it’s not what you expected. There’s an extra amount you have to pay on the car to the Australian Taxation Office (ATO) called the Luxury Car Tax (LCT).
If you weren’t expecting it, this tax can add a considerable amount to the price of your car. So, whether you’ve already seen it on your invoice or you’re still in the market for your dream vehicle, it’s worth your time to understand the LCT. Below, one of our ITP accountants answers the 7 most common questions we get from clients about the Luxury Car Tax in Australia.
What Is Luxury Car Tax?
LCT is a tariff the ATO places on new cars that are less than two years old and sold above a certain threshold. This tariff applies to luxury cars that are at the higher end of the market. The LCT was brought in to protect the local car manufacturing market in a bid to persuade Australians to purchase locally-made cars.
How Much Is Luxury Car Tax in Australia?
The LCT is 33% of the GST-inclusive value of a car that exceeds the LCT threshold. The LCT is paid by the dealer and passed on to the buyer. You’ll generally find it listed below the Goods and Services Tax (GST) on your invoice.
Pro tax tip: Want to learn more about the GST and when it applies? Check out our complete beginner’s guide to the GST.
How Is Luxury Car Tax Calculated?
To calculate LCT, you need to use the following formula:
LCT value – LCT threshold x 10 ÷ 11 x 33%
The LCT value is the retail price of the car and includes GST and customs duty, dealer delivery charges, standard and statutory charges, accessories, modifications and treatments, fleet rebates, and support payments.
LCT doesn’t include other taxes, fees or charges (e.g. stamp duty, transfer fees and registration), compulsory third-party insurance, extended warranties, service plans, or any other costs associated with financing the car. For example, if you purchase a car that does not meet the fuel efficiency requirements at the price of $110,000, it would include an LCT amount of $11,445.30.
What Is the Current LCT Threshold?
The LCT threshold rates generally change each financial year. If you acquired your vehicle in the 2021-22 tax year, for example, the LCT threshold of $79,659 would apply for a fuel-efficient vehicle. For a non-fuel-efficient vehicle (fuel consumption of 7L/100km or less), the threshold of $69,152 would apply.
The 2022-23 LCT thresholds are $84,916 for fuel-efficient vehicles and $71,849 for non-fuel-efficient vehicles. For the 2023-24 tax year, they will be $89,332 for fuel-efficient vehicles and $76,950 for other vehicles.
Purchasing a luxury vehicle for business use? Note that you can’t claim GST on LCT, regardless of business use. The maximum amount of GST credit you can claim is one-eleventh of the car limit amount. For the 2022-23 financial year, the amount is $6,191.
Pro Tax Tip: The LCT value includes the value of any parts, accessories or attachments supplied or imported at the same time as the car. If you’re not sure what value to use when calculating the LCT, feel free to contact your nearest ITP branch today. One of our friendly accountants can help you determine what you’ll owe so you can make an informed purchasing decision.
When Does Luxury Car Tax Apply?
LCT applies to dealers who have an ABN and who purchase or deal in luxury cars. This includes retailers, wholesalers, manufacturers and any other businesses that sell luxury cars. You’ll also be required to pay LCT if you’re an individual who imports a luxury car.
A two-year rule applies. LCT doesn’t apply to cars two or more years old from the time of supply, import, or manufacture.
LCT also depends on the type of car bought. Cars designed to carry less than two tonnes and fewer than nine passengers over the threshold will attract LCT. The ATO classified limousines as a car, regardless of the number of passengers it can carry.
If you purchase the car for a person with a disability, LCT applies to the purchase of the car without disability-related modifications. LCT applies to eligible cars over the threshold amount where the use is:
- For rally or race driving
- For staff salary packaging
- For promotion or sponsorship purposes
- An executive vehicle or a capital asset
When Does Luxury Car Tax Not Apply?
Certain vehicles will be exempt from attracting LCT. If you or your business are registered for GST, you may be able to defer paying LCT by quoting your ABN. Note that eligibility criteria apply. The car should only be used to:
- Hold trading stock
- Carry out research and development for the car’s manufacturer
- Export GST-free
If the car was imported more than two years before the sale or exported as a GST-free export, LCT will not apply. The following vehicle types are also exempt:
- Emergency vehicles (ambulances, fire fighting vehicles, police vehicles, and search and rescue vehicles)
- Motorhomes and campervans
- Commercial vehicles designed to carry goods or deliver services
Can I Avoid Luxury Car Tax?
There is no escaping LCT if you fall into the eligible luxury car criteria. However, you can reduce the LCT by purchasing a fuel-efficient car. The ATO defines a fuel-efficient car as using 7 litres or less of fuel per 100 kilometres.
As mentioned earlier, the 2022-23 threshold for a fuel-efficient car is $84,916, compared to just $71,849 for a non-fuel-efficient luxury vehicle. That’s a significant difference to consider and might make the difference between paying LCT and dodging it altogether.
Pro Tax Tip: If you buy a car that has already attracted LCT, it will not attract the tax again, even if it is less than two years old.
ITP’s Accounting Professionals have been helping Australians with their taxes, bookkeeping, and financial advice for more than 50 years. That adds up to a lot of experience that you can take advantage of with just a quick phone call. So, if you’re still uncertain about the luxury car tax (or any other accounting issue for that matter), phone 1800 367 487 to chat with a friendly professional today.