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Luxury Car Tax threshold increases to save buyers thousands

luxury-car-tax-threshold-increases-to-save-buyers-thousands

Some new-car buyers will save close to $1700 in Luxury Car Tax and stamp duty, following the largest increases to the LCT threshold in recent years.


Alex Misoyannis

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The largest increases to the Luxury Car Tax (LCT) threshold in at least a decade will save buyers of certain fuel-efficient cars close to $1600 – before lower stamp duty rates are applied.

However, the controversial tax continues to be slammed as an outdated “a tax on a tax”, because it was introduced to protect a local car manufacturing industry which has since died.

As reported last month, the LCT threshold has increased by its most significant margin in at least 10 years for the current 2022-23 financial year, increasing by 3.9 per cent for most vehicles, or 6.6 per cent for vehicles with combined fuel use ratings of less than 7.0 litres per 100km.



It means the tax – which adds a 33 per cent tariff to each dollar above the threshold – now applies to standard vehicles priced from $71,849 (up from $69,152), or $84,916 for aforementioned “fuel-efficient vehicles” (up from $79,659).

With the increased thresholds come reductions in the LCT applied, with buyers of “fuel-efficient” vehicles (including electric cars) to save up to about $1575 in LCT, while buyers of less efficient vehicles could save up to $810.

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The greatest savings apply to vehicles priced beyond both old and new Luxury Car Tax thresholds – though buyers of cars priced between the two thresholds will also enjoy a price reduction, albeit to a lesser extent.



These savings will also reduce the amount of stamp duty paid on each new-car purchase, as LCT is applied to the purchase price of motor vehicles inclusive of Luxury Car Tax.

Exact savings differ between states due to the variations in stamp duties across borders.

However, as an example, a buyer of a $90,000 electric vehicle in New South Wales or Victoria could expect to save about $80 in stamp duty, once the lower LCT rates are applied.



Luxury Car Tax is applied to the base price of the vehicle inclusive of GST, plus dealer delivery charges – between $2000 and $4000, depending on the brand – and any cost options fitted, such as metallic paint, option packs, or other accessories.

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Hybrid or electric vehicles previously beyond the $79,659 2021-22 LCT threshold – but now under the new $84,916 marker – include the Tesla Model 3 Long Range ($81,725 after order/delivery fees) and Lexus NX350h F Sport/Sports Luxury hybrids (about $80,500).

A number of European luxury cars with frugal (but non-hybrid) petrol engines also now sneak under $84,916, including the top-selling BMW 330i (about $82,000), Mercedes-Benz C200 (also about $82,000) and Audi A5 Sportback 40 TFSI (about $80,500).



Meanwhile, under the new $71,849 threshold for all other vehicles, LCT-free cars now include the Audi SQ2 ($70,400 with dealer delivery) and Genesis GV70 2.5T RWD ($69,400).

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Some cars previously priced between old and new thresholds have been hit with price rises from July 1, pushing them above the new LCT baseline – while others, such as the Kia Sorento PHEV, have received price rises smaller than their cut to LCT, meaning they’re cheaper to buy once all on-road fees are added.

The above prices include estimated dealer delivery fees (based on manufacturer data on their websites, or supplied to the Redbook guide) but exclude any optional extras.



Luxury Car Tax was introduced alongside the Goods and Services Tax (GST) in 2000, to counter the removal of other taxes on imported vehicles.

With 33 per cent LCT and 10 per cent GST, it was hoped it would price luxury and sports cars higher, granting some protection to Australian-made cars, most of which were priced below the LCT threshold.

While LCT thresholds have increased over the last two decades with inflation and market changes, in that time full-scale Australian car manufacturing has ceased, and new-car prices have risen beyond the rate of inflation – placing the tax under fire.

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A 2019 investigation by Drive found Toyota buyers paid more in Luxury Car Tax than buyers of BMW, Audi, Porsche or other luxury brands.

However, Luxury Car Tax generates close to $1 billion in annual revenue for the Federal Government – funds which would need to be recouped elsewhere, if the tax was to be scrapped.

The Federal Chamber of Automotive Industries (FCAI) has called Luxury Car Tax “an inefficient, punitive and poorly designed tax, which gives rise to a significant distortion in the Australian vehicle market”.



Meanwhile, Australian Automotive Dealers Association CEO James Voortman told Drive in March: “Prices of vehicles currently subject to Luxury Car Tax would certainly drop [if it was scrapped] … The main beneficiary would be customers as they are the ones absorbing the LCT…”.

Alex Misoyannis

Alex Misoyannis has been writing about cars since 2017, when he started his own website, Redline. He contributed for Drive in 2018, before joining CarAdvice in 2019, becoming a regular contributing journalist within the news team in 2020. Cars have played a central role throughout Alex’s life, from flicking through car magazines as a young age, to growing up around performance vehicles in a car-loving family.

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