The Pain of Luxury Cars Inflicted by Tax Laws

Luxury Car Tax Explained

The Australian government first introduced the Luxury Car Tax (LCT) Law on the 1st July 2000 in congruence with the introduction of Goods and Services Tax (GST) and the removal of sales tax. LCT is an amount payable to the federal government inclusive of GST when a car is above a certain threshold.

Currently, LCT is at 33% for a car valued above $67,525 for the 2019-20 year. “The value of the car would include parts, accessories or attachments you supplied, or imported, at the same time as the car” (ATO 2019). So, who has to pay? Any individual importing luxury cars above the threshold, or car dealers.

How do I do the quick math?

The formula is as follow:

(Luxury car retail value – LCT threshold) X (10/11) X (33/100)

So, if Adam bought a Jaguar for $72,000 the LCT payable is:

($72,000 – $67,525) X 10/11 X 33%

4475 X 10/11 X 33%

= $1342.50

Hence, the total purchased price would be $73,342.50. This is not inclusive of any other on-road costs, registrations etcetera.

Strategies to avoid the LCT:

  • Buying fuel-efficient cars as it has a higher threshold of $75,526. The ATO defines fuel-efficient car as one that does not exceed 7 litres per 100 km
  • Leasing/ renting a car. The tax payable will include GST and customs duties but excludes LCT and any other Australian tax
  • Buying a slightly more ‘mature’ car assuming it has declined in value over the years. If it was more than 2 years old it would not be subject to LCT. The ATO considers a car’s age at the time of supply if it was manufactured locally or imported more than 2 years previously (ATO 2019)
  • Buying a second-hand car. As the previous owner has already paid for the LCT, you would not be subject to it

Please note that this is subject to change, depending on which state you are living in.

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