Accredited Member

Let’s Talk 02 9058 5838

Suite 2.11, 11-13 Solent Circuit Norwest NSW 2153

pexels-pixabay-164634 (2)

Want to avoid the luxury car tax?

If you’re considering purchasing a new vehicle, there are some factors to consider to avoid paying the luxury car tax and avoid paying any more than you need to.

The purpose of the luxury car tax (LCT) was to protect the Australian car manufacturing industry and encourage Australians to purchase locally-built cars. It also prompted car makers such as Toyota to start making their cars in Australia with the expectation that it would stimulate the economy by creating jobs.

However, local car production ceased years ago and the LCT no longer serves its original purpose to keep the market competitive.

How does the LCT work?

The LCT is paid on cars that exceed a specific threshold, which is indexed each year. As of 2024, the tax adds 33 per cent to each dollar over the threshold and applies to vehicles over $76,950, or $89,332 for fuel-efficient cars.

Fuel-efficient cars are cars that consume less than 7.0L/100km, such as electric and hybrid vehicles. This fuel consumption threshold is expected to increase by 5.2 per cent in the 2024/2025 financial year.

The LCT is also paid by businesses that sell or import luxury cars and by individuals who import luxury cars.

According to the Australian Taxation Office (ATO), the LCT applies to cars that are under two years old.

“LCT applies to sales of cars that are two years old or less. A car is more than two years old at the time of supply if it was manufactured locally or imported more than two years previously.”

The ATO has noted that regardless of whether a vehicle or individual is GST-exempt, you must still pay the LCT.

If the car you’ve purchased has increased in value, you’ll have to pay the LCT again.

“If you sell a car that is two years old or less and the car has already been subject to LCT, you may still have to pay LCT on the latest sale if the car has increased in value. The LCT payable on this latest sale is reduced by all the LCT paid (or due to be paid) on any previous sale or importation. In calculating this, you must take into account any previous LCT adjustments, except bad debts,” the ATO states.

How is the LCT calculated?

The LCT is calculated using several factors including the base cost of the car, including delivery charges, and optional extras such as paint and car accessories. The LCT doesn’t add in the cost of registration, insurance, or on-road costs on top of the cost of the car.

As an example, you purchase a car with a base price of $70,000. Once you add metallic paint, tinting, and after-market accessories, the new total could be $80,000 which means you must pay the LCT.

Can you avoid paying the LCT?

There are some ways to procure a new car without paying the luxury car tax, however, you can’t avoid paying it if you meet the threshold as the ATO have systems in place to determine that you have to pay it.

“The ATO is committed to ensuring all taxpayers comply with their obligations to ensure there is a level playing field. We have sophisticated systems in place, including data matching against car registrations and imports, to identify non-compliance,” the ATO states.

Are there any exemptions to LCT?

While paying the LCT is unavoidable if you must do so, there are exemptions to it that some may benefit from.

Buy a ute

One common way to bypass the LCT is to buy a ute. There is a clause under the guidelines where a dual-cab ute is classified as a “goods-carrying vehicle”.

This is because every ute above the threshold has double or more payload capacity compared to passenger cars.

The official passenger carrying capacity is 68kg per person multiplied by the number of seats. All dual-cab utes on the market maxes out at five seats which means that their maximum passenger-carrying capacity is 340kgs. Thus, your ute only has to be rated for a payload of 680kg or more to be exempt from the LCT.

Modification for those with a disability

The ATO has included an exemption on the LCT for people who need to modify their cars due to their disability.

The LCT still applies to a vehicle bought by a person with a disability where its value exceeds the LCT threshold.

However, the LCT doesn’t apply to modifications to a car that is “solely to adapt it to be driven by a person with a disability or adapt it for transporting a person with a disability, such as a wheelchair modification,” the ATO says.

Buy a caravan or motorhome

Caravans and motorhomes are quite pricey and paying the LCT on these would be shocking.

The ATO has noted that these types of vehicles are exempt from the LCT. Like utes, these vehicles’ primary purpose isn’t to carry passengers but to live in or use as a temporary home.

Buy a used or older car

Purchasing a car over two years old means that you don’t have to pay the LCT on it. It also means that you’ll pay less compared to a new car.

If you’re thinking of importing cars, any vehicle over the threshold and imported within the last two years is not exempt from the LCT regardless of its age.

A newer used car (i.e. below two years old) can be exempt from LCT if it has already been paid or must be paid by the previous owner, where you must provide proof that it has been paid prior. This rule is applicable if you buy the car for the same price or less than the previous owner. If the value has increased, you will have to pay the LCT.

Get your accessories later

As mentioned before, any accessories and options you add to your car will contribute to the final price which will dictate whether you pay LCT.

It may be better if you get your accessories aftermarket as it means you’ll be saving on paying the LCT. While some things may be cheaper to just pay LCT on, others like wheels or a sound system, may be best left until after delivery of the vehicle.


According to the ATO website, “If you’re registered for GST, you may be able to defer paying LCT by quoting your ABN”.

This rule is mainly for dealerships and importers and doesn’t apply if you intend to have the car for personal use, staff salary packaging, promotional or sponsorship cars or as a capital asset.

“These restrictions apply even if you intend to sell the car at a later date. If you’ve quoted your ABN and then use the luxury car for such a purpose, you must pay the LCT,” says the ATO.

“If you are a retail car dealer who purchases a car as trading stock, and that car will only be used as a demonstrator vehicle for potential customers to see or test drive, it is accepted that you are able to quote on the purchase of the car. If you’re a business and import a luxury car to restore and sell, you’re holding it as trading stock. Provided you don’t intend to use the car for any other purpose, you can quote your ABN.”

Are there other ways to avoid the LCT?

Like many other taxes, there aren’t many legal ways to avoid paying the LCT. Any ideas of markdowns, paying with cash or simply not paying the LCT have been considered by the ATO.

The ATO began cracking down on businesses that were using unscrupulous methods to avoid the LCT in 2021 and 2022. Said companies and dealerships were selling cars above the LCT threshold and applying for a refund of the LCT that was paid by creating a chain of owners that would make it hard to trace.

“To ensure they are not inadvertently involved in a LCT avoidance scheme, many major car dealers now ordinarily impose LCT on all of their sales, leaving it up to re-sellers to claim any LCT refunds they may be entitled to. Where we identify high-risk refunds, we may withhold the refund pending our review of the claim,” said an ATO spokesperson.

If you want to avoid the luxury car tax, the best way is to purchase a vehicle under the threshold. To avoid any potential tax headaches, pay the tax when you must.

“Purchasers of luxury cars can reduce their risk of being involved in an LCT avoidance scheme by dealing directly with reputable dealers and being cautious if approached by an intermediary offering to purchase a luxury car from a dealer on your behalf at a significant discount. Not only may you be participating in a tax avoidance scheme, you may be at risk if the car is damaged or defective, the intermediary doesn’t have the right insurance or requests more money than initially agreed, or you don’t receive the car you believe you have purchased,” said the ATO spokesperson.

request-quote-icon-blueRequest a Quote

Simply fill out your details below in order to request a quote from us. We will be in contact with you shortly after.

Our Main Financiers Include