Luxury car tax thresholds in Australia determine when a 33% tax applies to your vehicle purchase. For the 2025–26 financial year, the thresholds are $91,387 for fuel-efficient vehicles and $80,567 for all other vehicles. These numbers matter for every business owner, salary packager, and fleet manager buying a vehicle above these price points.
A major change from 1 July 2025 tightened the definition of “fuel-efficient” — meaning many vehicles that previously qualified for the higher threshold no longer do. This guide explains the current thresholds, the new rules, and how LCT interacts with business deductions and FBT.
LCT thresholds for 2025–26
| Category | 2025–26 Threshold | 2024–25 Threshold |
|---|---|---|
| Fuel-efficient vehicles | $91,387 | $91,387 |
| All other vehicles | $80,567 | $80,567 |
| LCT rate | 33% | 33% |
The thresholds did not increase for 2025–26 because the indexation factor was below 1.0. Both thresholds remain unchanged from the prior year.
How LCT is calculated:
LCT applies to the amount by which the GST-inclusive value of the car exceeds the relevant threshold. The formula is:
(Car value − LCT threshold) × 10/11 × 33% = LCT payable
For example, a $100,000 car (non-fuel-efficient):
($100,000 − $80,567) × 10/11 × 33% = $5,831 LCT
This amount is payable on top of the purchase price and GST.
The fuel-efficient vehicle change: 3.5L/100km
The biggest change for 2025–26 is the new definition of “fuel-efficient” for LCT purposes.
Before 1 July 2025: A vehicle was fuel-efficient if it had a combined fuel consumption of 7 litres per 100 km or less. This covered most hybrid SUVs, many plug-in hybrids, and several efficient petrol vehicles.
From 1 July 2025: A vehicle is only fuel-efficient if it has a combined fuel consumption of 3.5 litres per 100 km or less. This effectively limits the higher threshold to:
- Battery electric vehicles (BEVs) — 0 L/100km
- Hydrogen fuel cell vehicles — 0 L/100km
- A small number of plug-in hybrids with very low fuel consumption ratings
Impact: Many popular family SUVs and plug-in hybrids that previously qualified for the $91,387 threshold now fall under the $80,567 standard threshold. If you are buying a vehicle priced between $80,567 and $91,387 that no longer qualifies as fuel-efficient, you will pay LCT when previously you would not have.
Electric vehicles and LCT
Pure electric vehicles (BEVs) have zero fuel consumption, so they automatically qualify for the higher $91,387 fuel-efficient threshold. This means:
- An EV priced at or below $91,387 incurs no LCT
- An EV priced above $91,387 pays LCT only on the amount above the threshold
- Combined with the FBT exemption, EVs below $91,387 offer significant tax advantages for salary-packaged vehicles
For more on EV tax benefits, see EV FBT Exemption Australia.
How LCT affects business car deductions
LCT has a direct impact on the deductions available to businesses that purchase vehicles above the threshold.
Car cost limit for depreciation: The ATO car cost limit for 2025–26 is $69,674. This is the maximum depreciable amount for a passenger car — and it is lower than both LCT thresholds. If you buy a $95,000 car, you pay LCT on the amount above the threshold, but you can only depreciate up to $69,674.
GST credit cap: The maximum GST credit on a car purchase is one-eleventh of the car cost limit: $6,334. This applies regardless of the car’s actual price.
LCT is not deductible as a GST credit. You cannot claim a GST credit for any LCT you pay. However, the LCT amount may form part of the car’s cost base for capital gains tax purposes if you later sell the vehicle.
Logbook deductions still apply. Running costs (fuel, insurance, servicing, registration) are deductible based on your business-use percentage, regardless of whether you paid LCT on the purchase. For logbook rules, see ATO Logbook Requirements.
LCT and novated leases
If you salary package a vehicle through a novated lease, LCT applies at the point of purchase. The leasing company pays the LCT and builds it into your lease payments.
For EVs below $91,387, there is no LCT and no FBT — making salary packaging extremely cost-effective. For traditional vehicles above the threshold, the LCT adds to your total lease cost.
Key consideration: the FBT statutory formula uses the car’s cost price including LCT. A higher cost means a higher taxable value and more FBT. This double impact (LCT paid + higher FBT base) makes vehicles above the threshold significantly more expensive to salary package.
Who pays LCT?
LCT is paid by the seller (dealer or importer) and is typically passed on to the buyer in the purchase price. For private sales of vehicles under two years old, the seller may also need to account for LCT.
Refunds and exemptions:
- Primary producers and tourism operators may be eligible for an LCT refund on vehicles used primarily (more than 50%) for eligible activities
- The refund is limited to the amount of LCT above the non-fuel-efficient threshold
- Diplomatic and consular staff may be exempt
Planning around LCT thresholds
If you are purchasing a business vehicle close to an LCT threshold, consider these strategies:
Choose a vehicle below the threshold. A car priced at $79,000 avoids LCT entirely. One at $82,000 triggers $726 in LCT. The marginal cost of going slightly above the threshold is real.
Consider an EV. Electric vehicles benefit from the higher $91,387 threshold and the FBT exemption. For salary packagers, this combination is the most tax-efficient way to acquire a premium vehicle.
Negotiate the drive-away price. LCT applies to the GST-inclusive value of the car, including dealer delivery but excluding registration, insurance, and stamp duty. Negotiating a lower base price directly reduces LCT.
Track your business kilometres regardless of LCT
Whether your vehicle attracts LCT or not, your running cost deductions depend on an accurate business-use percentage. A valid logbook is the foundation of every car expense claim.
Tripbook captures every trip automatically with GPS — no manual logbooks, no missed journeys. Classify trips as business or personal, and export your data at tax time in PDF, CSV, or XLS format.
Download Tripbook to track your business driving accurately, whether you are in a $30,000 hatchback or a $90,000 EV.
