Purchasing a luxury vehicle often comes with additional financial considerations due to the Luxury Car Tax (LCT). Introduced to encourage buyers to choose more affordable or fuel-efficient vehicles, the LCT applies to cars that exceed a specified threshold.  

Planning your vehicle purchase with the LCT in mind can help minimise costs and ensure a more strategic investment. 

What is the LCT? 

The Luxury Car Tax is a federal tax applied to vehicles priced above a certain threshold. For the 2024–25 financial year, the LCT thresholds are: 

• Fuel-efficient vehicles: $91,387 

• Other vehicles: $80,567 

LCT is calculated at 33% on the portion of the car’s value that exceeds the threshold. 

Who pays the LCT?

While dealerships typically include the LCT in the price of the vehicle, the cost is ultimately borne by the buyer. This tax applies to both new and some imported used vehicles, depending on their classification. 

Strategies to minimise LCT liability

1. Choose fuel-efficient vehicles 

The higher threshold for fuel-efficient vehicles provides an opportunity to reduce LCT liability. Opting for hybrid or electric cars not only helps you save on tax but also aligns with sustainable practices. 

2. Time your purchase 

If you’re considering a vehicle close to the threshold, watch for end-of-financial-year sales or dealership promotions. These events may lower the purchase price below the LCT threshold. 

3. Consider business use 

If the vehicle is primarily used for business purposes, you may be able to claim tax deductions or GST credits that can offset the overall cost. Speak to an accountant about structuring the purchase through your business. 

4. Purchase a demonstrator vehicle 

Demonstrator vehicles, often sold at a discount, may fall below the threshold while still offering the benefits of a new car. 

5. Understand trade-in value exclusions 

LCT is calculated on the total purchase price before considering trade-in value. This means a trade-in will not reduce the taxable portion of your new vehicle. Ensure the overall cost of the car remains below the threshold if minimising LCT is a priority.

GST and LCT considerations 

When LCT exceeds the threshold 

If the car’s value exceeds the relevant threshold, consider: 

• Negotiating with the dealership to reduce optional extras or features that increase the price. 

• Spreading the cost across multiple financial years if possible. 

How an accountant can help 

Engaging with an accountant can ensure your vehicle purchase is structured in the most tax-efficient manner. Whether it’s exploring financing options, claiming deductions, or understanding business implications, expert advice can save you money. 

While the LCT may seem like an unavoidable cost for luxury car buyers, strategic planning can significantly reduce its impact. By understanding the thresholds and leveraging available options, you can make a more informed decision that aligns with your financial goals. 

If you’re planning to purchase a vehicle and want tailored advice, contact our team of accountants. We’re here to help you navigate the complexities of taxes and make the most of your investment.