If you're shopping for an Audi, BMW, or Mercedes in Australia, you've probably noticed that the sticker price is often higher than you'd expect. Part of that comes down to a tax that kicks in the moment a vehicle exceeds a certain price threshold, the Luxury Car Tax (LCT). It's one of those costs that catches buyers off guard, but once you understand how it works, you can plan around it. This guide breaks down exactly what LCT is, how much it adds to your purchase, and how to legally minimise your exposure.
What Is the Luxury Car Tax?
The Luxury Car Tax is a federal government tax applied to the sale of vehicles above a set price threshold. It was introduced in 1999 alongside the GST, with the intention of placing an additional tax burden on high-value vehicle purchases. Importantly, LCT is separate from GST, it sits on top of it.
In practice, the dealership pays LCT to the ATO and passes that cost directly onto the buyer through the vehicle price. If you're buying a car above the threshold, you're paying it, whether it's itemised on the invoice or not.
The mechanics are straightforward: only the amount above the threshold gets taxed, not the full vehicle price. But at a rate of 33%, that slice adds up fast.
The 2025–26 LCT Thresholds
The LCT threshold is adjusted every financial year. For 2025–26, there are two separate thresholds depending on the vehicle's fuel efficiency:
| Vehicle Type | LCT Threshold |
|---|---|
| Standard vehicles | $80,567 |
| Fuel-efficient vehicles (7L/100km or less) | $91,387 |
These figures are GST-inclusive. Once the vehicle price crosses its applicable threshold, 33% LCT applies to every dollar above that line.
How Much Does It Actually Add?
Let's run the numbers on a real example. Say you're buying a vehicle with a GST-inclusive price of $95,000. Using the standard threshold of $80,567, the taxable amount is $14,433. Apply the 33% rate and you get an LCT bill of approximately $4,763.
WORKED EXAMPLE
Vehicle price: $95,000 − LCT threshold: $80,567 = Taxable amount: $14,433
$14,433 × 33% = LCT payable: $4,763
Most dealerships will have already folded this into the driveaway price, which is exactly why driveaway pricing matters. Always ask whether a quoted price is driveaway, and if so, confirm that LCT is included. If it isn't, you're in for a surprise at the paperwork stage.
Demo Cars and LCT. A Key Difference
Here's where it gets genuinely useful for buyers. LCT is calculated on the sale price of the vehicle. That means if you buy a demo car at a price below the LCT threshold, you pay zero LCT, even if the same car would attract thousands in tax when sold new.
DEMO CAR SCENARIO
An Audi model with a new price of $88,000 is available as a demonstrator for $78,500. That's below the standard LCT threshold of $80,567. Result: zero LCT payable.
This is one of the most overlooked advantages of buying a demonstrator. You're not just getting a discount on the car, you're potentially eliminating a tax that would have added thousands to the new-car equivalent. That's a structural saving, not just a negotiated one.
The Fuel-Efficient Threshold Is Worth Knowing
If you're considering a hybrid or electric vehicle, the higher threshold of $91,387applies, provided the vehicle consumes 7 litres per 100km or less on the combined cycle. That's roughly $11,000 more headroom than the standard threshold before LCT kicks in.
Given that most premium brands now offer hybrid variants, Audi's e-tron range, the BMW iX, Volvo EX90, this threshold difference can be a meaningful factor in your model choice. A hybrid version of a vehicle that would otherwise attract LCT might sit cleanly below the fuel-efficient threshold.
Legitimate Ways to Reduce Your LCT Exposure
LCT is a lawful tax, but there are legitimate strategies that can reduce or eliminate it. Here's what actually works:
FOUR APPROACHES THAT WORK
- Buy a demo car. If the demo price falls below the threshold, there's no LCT at all. Same factory warranty, significantly lower tax burden.
- Choose a fuel-efficient vehicle. Hybrid or EV models qualify for the higher $91,387 threshold, giving you more room before LCT applies.
- Use a novated lease. LCT still applies, but structuring the full vehicle cost as pre-tax salary reduces your effective after-tax outlay. Combining a novated lease with an LCT-efficient vehicle compounds the saving.
- Manage your option pack. Options are included in the LCT calculation. If the base vehicle sits just below the threshold, check with your dealer which options push it over, and whether any can be added post-sale or dropped entirely.
When LCT Can Be Refunded
There are limited circumstances under which LCT paid at the point of sale can be claimed back. These include:
LCT REFUND SCENARIOS
- Export. If the vehicle is exported from Australia, the LCT can be refunded.
- Primary production use. Vehicles used in primary industry (farming, agriculture) may qualify.
- Disability-modified vehicles. Certain modifications for disabled drivers attract concessional treatment.
Most private buyers won't qualify for a refund, but if you're purchasing for business purposes, it's worth a conversation with your accountant before settlement.
The Bottom Line
The Luxury Car Tax is one of those costs that's easy to ignore until you're sitting at the dealership wondering why the number doesn't match what you expected. At 33% on the amount above the threshold, it can add thousands to the final price of any premium vehicle.
The good news is that with a little planning, buying a demo, choosing a fuel-efficient model, or structuring through a novated lease, you can significantly reduce that exposure, or eliminate it altogether. Always start by asking for the driveaway price, confirming whether LCT is included, and checking which threshold applies to your vehicle of choice.
Know the rules, and they work for you. That's what smart buying looks like.
Find a Demo Car Below the LCT Threshold
Browse demo listings where the price, and the tax, works in your favour.
Browse Demo Listings
