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There are three certainties in life:

The last being the truest for new car buyers in Australia.

New car buyers are slammed with many taxes, including stamp duty, GST and the luxury car tax (LCT). LCT costs buyers an additional 33% of the value of the vehicle and is incurred on cars that are valued $79,659 for fuel efficient vehicles or $69,152 and above for all other vehicles (22/23 financial year).

Over the years, the LCT threshold value has been the following:

Financial Year
Fuel- Efficient Vehicles
Other Vehicles
2021/22$79,659$69,152
2020/21$77,565$68,740
2019/20$75,526$67,525
2018/19$75,526$66,331

Sourced from ATO, 2022.

Currently, the LCT is only charged on new cars above the threshold and certain used cars that are under two-years old, starting from the date they were either imported into or manufactured in Australia.

If the used car is sold for a second time within the first two years, and has increased in value, it will incur the LCT.

Why is there a luxury car tax?

First introduced by Prime Minister John Howard in 2001, the tax was "designed to maintain this higher rate of taxation so that the price of luxury cars did not fall dramatically", while also protecting the local manufacturing industry.

Initially, it was designed only for the most expensive luxury vehicles and was planned to be 'phased out' towards the end of the 00s.

How does it impact you?

When the tax was first introduced, it impacted approximately 2.5% of new vehicles sold and was 25% of the vehicles value above $55,134. In 2021, it was found to impact around 8.5% of new cars sold, with Toyota customers comprising majority of this figure over traditional luxury retailers such as Porsche and BMW.

Since car manufacturing has ceased in Australia with the closure of Holden, there have been many calls to scrap the LCT. Though it hasn't been addressed in the federal election agenda, members on both sides of parliament have agreed it should be removed.

Following an investigation and report introduced to the federal government issue by the Australian Automotive Intelligence and Federal Chamber of Automotive Industries, recommending the luxury car tax be abolished in 2008, then Prime Minister Kevin Rudd increased the tax from 25% to 33%.

At the time of introduction, 'non-luxury' manufacturers such as Toyota, Ford and Mitsubishi did not attract the tax as majority of their product line-ups did not exceed the threshold.

However, in 2022, more Landcruiser buyers are being hit with the LCT than Porsche drivers, further reinforcing the proposal that is should be scrapped.

Especially with the announcement of the free-trade agreement with the UK, automotive dealers in Australia are wanting to see the tax abolished.

Though it's unlikely we will see the LCT removed from the federal budget, with the growing call to abolish the tax it will be one to watch in the next few years.

In the meantime, you don't need to wait for the LCT to be abolished to save thousands on your new car. Remunerator can help you save on your new car with a novated lease today! Talk to our novated leasing specialists today here.