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 now three separate thresholds depending on what the car runs on, 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 Three Current Thresholds
For the 2025-26 financial year – the period running from 1 July 2025 to 30 June 2026 – there are now three separate thresholds:
- Standard vehicles (petrol, diesel, and most hybrids): $80,567
- Fuel-efficient vehicles (fuel consumption of 3.5 litres or less per 100 km): $91,387
- Zero-emissions vehicles (pure electric, under the Australia-EU Free Trade Agreement): $120,000
The thresholds are indexed annually against the motor vehicle Consumer Price Index. The indexation factor for 2025-26 was 0.997 – below 1.0 – which means the thresholds did not increase from the prior year. The 2026-27 figures have not been officially confirmed at the time of writing, but current CPI trends suggest a similarly modest adjustment, if any.
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. Previously, a vehicle consuming 7 litres or less per 100 km qualified for the higher $91,387 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. The practical impact on specific models:
- Toyota Kluger Grande Hybrid AWD: effective LCT increase of approximately $1,159
- Mazda CX-90 D50e Azami Takumi: effective LCT increase of approximately $3,806
- Audi Q5 40 TDI Quattro Sport MHEV: effective LCT increase of approximately $2,123
These are not supercars. They are family SUVs that happen to sit above $80,567. 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 price 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 Ferrari Roma
The Ferrari Roma is a front-engine GT car with a GST-inclusive price around $400,000 drive-away (before options). Applying the standard $80,567 threshold:
- Amount above threshold: $400,000 minus $80,567 = $319,433
- Remove GST: $319,433 x (10/11) = $290,394
- Apply LCT rate: $290,394 x 0.33 = $95,830 LCT payable
That LCT component is embedded in the $400,000 price you see advertised. It is not added on top at the point of purchase – it is already in there.
Worked example: A $95,000 hybrid SUV
Take a hybrid family SUV priced at $95,000 that no longer qualifies as fuel-efficient under the new 3.5L/100km definition. It now uses the standard $80,567 threshold:
- Amount above threshold: $95,000 minus $80,567 = $14,433
- Remove GST: $14,433 x (10/11) = $13,121
- Apply LCT rate: $13,121 x 0.33 = $4,330 LCT payable
If the same vehicle still qualified under the fuel-efficient $91,387 threshold, LCT would be:
- Amount above threshold: $95,000 minus $91,387 = $3,613
- Remove GST: $3,613 x (10/11) = $3,284
- Apply LCT rate: $3,284 x 0.33 = $1,084 LCT payable
The reclassification costs that buyer approximately $3,246 extra. That is real money for someone buying a practical family vehicle.
The EU Free Trade Agreement: What Changed
Australia’s Free Trade Agreement with the European Union delivered two automotive outcomes. First, the 5 per cent import tariff on European vehicles was scrapped. Second, a new $120,000 LCT threshold was created specifically for zero-emissions vehicles, benefiting European-made EVs like the BMW iX3 and Mercedes-Benz GLC Electric.
What the agreement did not do was abolish LCT. European manufacturers and the FCAI had lobbied hard for complete removal, but the government held its ground. The new $120,000 EV tier was the concession offered in lieu of full abolition.
The net effect for Australian buyers of European electric vehicles is meaningful. A fully electric BMW or Mercedes priced at $115,000 now falls below the $120,000 threshold and attracts no LCT at all. The same car a year ago would have attracted LCT based on a lower fuel-efficient threshold.
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?
Possibly. The federal government has signalled it is open to phasing out LCT as part of broader automotive policy reform, though no firm timeline has been set. Industry groups – particularly the FCAI and AADA – have argued for years that LCT penalises vehicles with advanced safety systems, hybrid drivetrains, and driver assistance technology specifically because those features add cost. A car that costs more because it is safer or cleaner is taxed more. The logic of that outcome is difficult to defend.
The Australia-EU FTA negotiations brought LCT reform closer than it has ever been, but the tax survived. Whether it survives the next round of trade negotiations or a future budget decision is an open question. Australian buyers buying above the threshold in 2026 should not count on a refund if LCT is eventually abolished – but it is worth knowing the policy environment is changing.
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 can exceed $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 may qualify for the $120,000 threshold. If you are buying a zero-emissions vehicle, check whether it qualifies under the new tier. The applicable threshold is significantly higher, and some European EVs now fall below it entirely.
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 operates across three tiers, with the standard threshold at $80,567, the fuel-efficient tier at $91,387 for vehicles consuming 3.5L/100km or less, and a new $120,000 tier for zero-emissions vehicles. 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.