Luxury Car Tax in Australia: What Small Business Owners Need to Know for Accurate Bookkeeping

What Is Luxury Car Tax?

Luxury Car Tax is part of Australia’s tax system managed by the Australian Taxation Office. It was originally introduced to balance local manufacturing and imported vehicles. The tax applies when you buy or import a new car above the taxable value limit, unless you qualify as an eligible buyer and quote your Australian Business Number (ABN) correctly.

Luxury Car Tax Rate and Thresholds

Each financial year the luxury car tax threshold is indexed. For fuel efficient vehicles with a fuel consumption rating of 7 L/100 km or less, a higher LCT threshold applies. All other vehicles face a lower luxury car threshold. For the 2024–25 financial year, the general threshold is $80,567 and the fuel-efficient threshold is $91,387. If a car’s GST inclusive value exceeds these thresholds, LCT is payable at 33 percent on the excess amount.

Vehicles Subject to the Tax

LCT covers a broad range of vehicles:

• Luxury cars and luxury vehicles such as premium sedans, sports coupes and SUVs from brands like Mercedes-Benz and BMW.

• Station wagons, four-wheel-drives and entry level models if their retail price exceeds the threshold.

• Imported vehicles where customs duty and dealer delivery charges form part of the total purchase price.

• Commercial vehicles designed to carry fewer than nine passengers are generally exempt, as are some emergency vehicles and tourism operator vehicles used for hire.

Bookkeeping Essentials for Managing LCT

Accurate bookkeeping for luxury car tax owed starts with clear record-keeping and the right chart of accounts in your accounting software. This ensures you can report pay LCT correctly on your Business Activity Statement and track luxury car tax liabilities separately from GST.

Calculating LCT Payable

To calculate the LCT value:

1. Confirm the car’s GST inclusive price, including dealer delivery charges and customs duty.

2. Subtract the applicable luxury car tax threshold (fuel efficient or other vehicles).

3. Multiply the excess by the luxury car tax rate of 33 percent.

For example, if a new car costs $100,000 GST inclusive and is not fuel efficient, LCT = ($100,000 – $80,567) × 0.33 = $6,397.

Recording GST Inclusive Value and Threshold

Record the full vehicle purchase details:

• Vehicle make, model and VIN.

• Total purchase price including stamp duty and compulsory third party insurance.

• The threshold applied: general or fuel efficient.

Applying the 33 Percent Tax Rate

Set up a “Luxury Car Tax Liabilities” account. Enter the LCT amount separate from GST. This way, when you lodge your BAS, Labels 1E (LCT payable) and 1F (LCT refundable adjustments) are populated automatically.

Reporting on Your Business Activity Statement

LCT figures appear on your BAS alongside GST. If you quote your ABN correctly for eligible buyers, you defer paying LCT until the vehicle is sold or ceases to be used for its quotable purpose. Otherwise, you pay LCT on or before your BAS lodgement date.

Record-Keeping Best Practices

Maintain all vehicle purchase invoices and ABN quotation evidence for at least five years. A consistent folder structure—digital or physical—helps:

• Store purchase invoices in a “Vehicle Purchases” folder.

• Save calculation worksheets and adjustment notes in an “LCT Calculations” folder.

• Archive BAS lodgement confirmations in a “Tax Returns” folder.

Strategies to Manage Luxury Car Tax

By planning vehicle purchases and choosing the right models, small business owners can manage their luxury car tax obligations and reduce cash-flow pressures.

Quoting Your Australian Business Number

Quoting your ABN at the point of sale shifts the LCT liability to when the vehicle is resold or changes use. This strategy can help tourism operators and small commercial operators avoid paying LCT upfront.

Choosing Fuel-Efficient or Electric Vehicles

Selecting more fuel-efficient vehicles or electric vehicles reduces the LCT owed by raising the luxury car threshold. Environmentally friendly vehicles benefit from a higher LCT threshold. As fuel consumption ratings tighten, these options become even more attractive both for running costs and tax planning.

Considering Total Ownership Cost

Beyond LCT, factor in stamp duty, compulsory third-party insurance and vehicle resale values. Some luxury vehicles depreciate faster, impacting the refund you might claim when the car is sold. A lower taxable value at purchase often leads to a higher resale margin.

Monitoring Legislative Changes and Trade Agreements

Stay informed through the Australian Taxation Office and industry bodies like the Australian Automotive Dealer Association. The Albanese Government’s free trade agreements and trade negotiations can influence import duties, altering the taxable value of imported vehicles. Regularly review ATO updates each June to prepare for new tax systems or threshold changes.

Common Pitfalls and How to Avoid Them

Even seasoned business owners can slip up when dealing with luxury car tax. The key is awareness and consistent processes.

Misclassifying Vehicles and Exceeding Thresholds

Assuming a car is fuel efficient without checking its official rating can lead to applying the wrong threshold. Always verify the ADR test cycle rating before purchase.

Overlooking Additional Charges

Dealer delivery charges, customs duty and stamp duty form part of the GST inclusive value. Missing these in your calculations can understate your LCT payable and lead to unexpected liabilities.

Incomplete Records and Audit Risks

Failing to keep detailed records of ABN quotations, adjustments and BAS lodgements increases audit stress. Use clear, itemised documentation and back up digital files to ensure you can substantiate every entry.