Luxury Car Tax adds a significant amount to the purchase price of every new car sold in Australia above the threshold. If you are buying a Ferrari, Porsche, Lamborghini, or any car above the applicable limit, you are paying it whether you realise it or not. As of 2026, the system is more complex than it used to be. There are two thresholds, depending on how much fuel the car uses, and a major change that took effect from 1 July 2025 has shifted which vehicles qualify for the more generous tier. Here is exactly how it works, what the current thresholds are, and what it means for your purchase.
What Is Luxury Car Tax?
Luxury Car Tax (LCT) is a federal tax levied on the sale or importation of new vehicles whose GST-inclusive value exceeds a set threshold. It applies at a flat rate of 33 per cent on the portion of the vehicle’s price above that threshold, calculated on the GST-exclusive amount.
LCT was introduced on 1 July 2001, initially at a rate of 25 per cent. The rate was lifted to 33 per cent in 2008 and has remained there ever since. The original rationale was to protect Australian car manufacturing from cheaper, more competitive imports. That industry is gone – the last Australian-made car came off the line in 2017 – but the tax has outlasted it. There are signs that may change, which we cover below.
The Current Thresholds
For the 2026-27 financial year, which runs from 1 July 2026 to 30 June 2027, the ATO lists two thresholds:
- Standard vehicles (petrol, diesel, and most hybrids): $80,809
- Fuel-efficient vehicles (fuel consumption of 3.5 litres or less per 100 km): $91,661
The thresholds are indexed each year. The indexation factor for 2026-27 is 1.003, so both thresholds rose slightly on 2025-26. The rate stays at 33 per cent. A third, higher threshold for zero-emissions vehicles is part of the Australia-EU trade agreement covered below. As at October 2026 it is not in the ATO’s threshold table.
The Big Change: Fuel Efficiency Tightened
The most significant shift affecting buyers in 2026 is a change to the fuel-efficient vehicle definition that took effect from 1 July 2025. Before July 2025, a vehicle consuming 7 litres or less per 100 km qualified for the higher threshold. That definition has been halved. Now the vehicle must consume 3.5 litres or less per 100 km to qualify.
This matters because many popular hybrid SUVs – vehicles that previously sat comfortably under the fuel-efficient threshold – have now been pushed into the standard category. These are not supercars. They are family SUVs that happen to sit above $80,809. The tighter definition hits mainstream buyers harder than it hits exotic car buyers, because a Ferrari owner’s LCT calculation is barely moved by a threshold shift of $10,000. For someone spending $92,000 on a large hybrid SUV, the reclassification is meaningful.
How the Calculation Works
The LCT formula is:
LCT payable = (GST-inclusive value before LCT minus LCT threshold) x (10/11) x 0.33
The 10/11 step removes GST from the taxable amount before applying the LCT rate, because LCT is calculated on the GST-exclusive portion of the car’s value above the threshold.
Worked example: A $400,000 sports car
Take a front-engine GT car with a GST-inclusive value of $400,000 before LCT is added. Applying the standard $80,809 threshold:
- Amount above threshold: $400,000 minus $80,809 = $319,191
- Remove GST: $319,191 x (10/11) = $290,174
- Apply LCT rate: $290,174 x 0.33 = $95,757 LCT payable
The dealer builds that LCT into the price, so the advertised price in this example would be about $495,757 before on-road costs. It is not added on top at the point of purchase. It is already in the advertised price.
Worked example: A $95,000 hybrid SUV
Take a hybrid family SUV with a GST-inclusive value of $95,000 before LCT that no longer qualifies as fuel-efficient under the new 3.5L/100km definition. It now uses the standard $80,809 threshold:
- Amount above threshold: $95,000 minus $80,809 = $14,191
- Remove GST: $14,191 x (10/11) = $12,901
- Apply LCT rate: $12,901 x 0.33 = $4,257 LCT payable
If the same vehicle still qualified under the fuel-efficient $91,661 threshold, LCT would be:
- Amount above threshold: $95,000 minus $91,661 = $3,339
- Remove GST: $3,339 x (10/11) = $3,035
- Apply LCT rate: $3,035 x 0.33 = $1,002 LCT payable
The reclassification costs that buyer approximately $3,255 extra. That is real money for someone buying a practical family vehicle.
The EU Free Trade Agreement: What Is Coming
Australia and the European Union concluded negotiations on a free trade agreement on 24 March 2026. The announced terms include removing the 5 per cent import tariff on European vehicles and a new $120,000 LCT threshold for zero-emissions vehicles, which would benefit European-made EVs like the BMW iX3 and Mercedes-Benz GLC Electric.
As at October 2026 the Department of Foreign Affairs and Trade lists the agreement as not yet in force. The ATO’s threshold table has no zero-emissions tier, and the Australian Border Force tariff still shows the general 5 per cent rate for passenger cars. Until the agreement takes effect, the two thresholds above are the ones that apply.
The agreement does not abolish LCT. The change on offer is the higher EV threshold.
If it takes effect as announced, a fully electric BMW or Mercedes priced at $115,000 would fall below the $120,000 threshold and attract no LCT at all.
Who Pays LCT?
LCT is paid at different points depending on how the vehicle enters the market:
- Authorised dealers: When you buy a new car from a licensed dealer, they collect LCT on behalf of the ATO. The LCT is embedded in the advertised price.
- Private importers: If you import a car privately – for example under the Specialist and Enthusiast Vehicle Scheme – you pay LCT directly to the Department of Home Affairs at importation.
- Businesses: Businesses registered for GST can claim the GST component back on a vehicle purchase, but cannot claim LCT as an input tax credit. LCT is a dead cost regardless of business purpose.
LCT applies once – at the point of first retail sale or importation of a vehicle less than two years old from its date of manufacture. Used car transactions between private buyers do not trigger LCT.
Effect on Resale Values
LCT has a compounding effect on depreciation that buyers often do not think through. When you purchase a new car above the LCT threshold, you are paying for a non-recoverable tax as part of the purchase price. The used car buyer you eventually sell to does not pay LCT – they pay market value based on what a secondhand vehicle is worth. That creates an asymmetry between what you paid and what the market will value the car at in its early years.
For exotic and prestige cars, this effect is partly offset by limited supply and collector demand. For mainstream premium vehicles above the threshold – think a well-specced Toyota LandCruiser or Range Rover Sport – the LCT component of the original purchase depreciates out of the value relatively quickly.
Is LCT on the Way Out?
Not yet. As at October 2026 the tax is still in place at 33 per cent. The only change announced so far is the higher zero-emissions threshold in the Australia-EU agreement, which is not yet in force. Anyone buying above the threshold in 2026 should plan on paying LCT, and should not count on a refund if it is ever abolished.
Practical Considerations
Verify whether the advertised price includes LCT. For new cars from authorised Australian dealers, it almost certainly does. Confirm with the dealer if you are unsure.
On-road costs are separate and vary by state. Stamp duty is calculated on the vehicle’s market value and is charged by state governments, not the federal government. At a $400,000 purchase price in Victoria, stamp duty is about $36,000. New South Wales is cheaper but still significant.
Check the fuel consumption figure carefully. With the fuel-efficient threshold now requiring 3.5L/100km or less, verify the official combined figure before assuming your vehicle qualifies. Figures above 3.5L/100km now land in the standard category regardless of how efficient the vehicle feels in real-world driving.
Pure EVs: check where the EU agreement is up to. The higher zero-emissions threshold of $120,000 is not in force as at October 2026. Until it is, a pure EV uses the standard or fuel-efficient threshold.
Private imports require more planning. If you are bringing in a vehicle outside normal dealer channels, you handle LCT independently through the Department of Home Affairs. The calculation principles are the same, but the administration is your responsibility.
The Takeaway
Luxury Car Tax in 2026-27 operates across two tiers, with the standard threshold at $80,809 and the fuel-efficient tier at $91,661 for vehicles consuming 3.5L/100km or less. A higher zero-emissions threshold of $120,000 is part of the Australia-EU agreement but is not in force as at October 2026. The fuel-efficiency tightening that took effect in July 2025 has moved many popular hybrid SUVs into the standard category, resulting in higher effective purchase costs for buyers in that segment.
For buyers of genuine exotics – a Lamborghini at $600,000, a Ferrari at $400,000 – LCT remains a fixed and substantial embedded cost that is simply part of what these cars cost in Australia. For buyers in the $80,000 to $120,000 range, the tier you fall into now matters more than it used to. Understanding the system before you sign is the difference between an informed purchase and an unexpected bill.
Where this came from
Every changeable figure above, what it was checked against, and when.
Figures are correct as at the dates shown. We re-check cars on sale every three months and tax thresholds every July. How we check our facts.
Side-by-side specs, Australian pricing and performance figures for every exotic and luxury car we cover.