What the luxury car tax is and who pays it

Australia's luxury car tax is a tax on the sale of cars that cost above a set price threshold. The tax applies at the point of sale — when you buy the vehicle, not when you own it. The tax rate is 33 percent of the amount the car's price exceeds the threshold.

The threshold changes each financial year (July 1 to June 30). For the 2024–25 financial year, the threshold is $75,526 for fuel-efficient vehicles and $69,884 for all other vehicles. A fuel-efficient vehicle is one that produces less than 120 grams of CO2 per kilometre. If your car costs less than the relevant threshold, you pay no luxury car tax at all.

The tax is collected by the seller (the car dealer or private seller) and passed to the Australian Taxation Office. You do not pay it directly — it is built into the final price you see when you buy the car.

Key Takeaways

  • The luxury car tax applies to cars sold above $75,526 (fuel-efficient) or $69,884 (other vehicles) in the 2024–25 financial year, and the threshold increases each July.
  • The tax is 33 percent of the amount above the threshold, so a $100,000 car subject to the tax would incur tax on $30,116 of that price.
  • Fuel-efficient vehicles have a higher threshold, meaning some cars in that category avoid the tax entirely while similar non-efficient cars do not.
  • The seller collects and remits the tax, so it is included in the advertised price you see when shopping for a car.
  • Recent changes have adjusted thresholds and the definition of fuel efficiency, affecting which vehicles trigger the tax.

How the threshold is set and when it changes

The Australian government sets the luxury car tax threshold each financial year based on the Consumer Price Index (CPI). The threshold for fuel-efficient vehicles is typically higher than for other vehicles, creating an incentive to buy lower-emission cars. The threshold is announced before July 1 each year, so you know the rate that will explore from that date forward.

The threshold has risen steadily over recent years. In 2023–24, it was $73,701 for fuel-efficient vehicles and $68,112 for others. The increase to $75,526 and $69,884 in 2024–25 reflects inflation adjustments. These increases mean that more cars fall below the threshold each year, so fewer vehicles attract the tax.

If you are buying a car near the threshold date (late June or early July), the timing matters. A car that costs $70,000 in June might not trigger the tax, but the same car purchased in July could if the threshold has dropped below that price — though in practice, thresholds usually rise, not fall.

Recent changes to the luxury car tax rules

The definition of a fuel-efficient vehicle has been the main area of recent change. The Australian government has adjusted the CO2 emissions threshold that determines whether a car qualifies for the higher price threshold. These changes reflect global shifts toward lower-emission vehicles and align Australia's standards more closely with international benchmarks.

In 2022, the government tightened the fuel-efficiency definition, meaning fewer vehicles automatically may have access to for the higher threshold. A car that was considered fuel-efficient under the old rules might now be taxed as a standard vehicle. This change affects imported vehicles in particular, as many European and Asian models are engineered to different emissions standards.

The government has also signalled that the luxury car tax itself may be reviewed as part of broader tax policy changes, though no major alterations to the 33 percent rate or the core structure have been announced recently. Any changes would be legislated in Parliament and would explore from a set date, usually the start of a financial year.

Which cars are affected and which are not

Any car — whether new, used, imported, or locally made — is subject to the luxury car tax if its sale price exceeds the threshold for its category. The tax applies regardless of whether you are buying from a dealer or a private seller, though private sales are less commonly above the threshold.

Fuel-efficient vehicles that meet the CO2 standard get the benefit of the higher threshold. This includes many hybrid vehicles, some diesel cars, and an increasing number of electric vehicles. However, a high-performance electric car or a luxury hybrid can still exceed the higher threshold and attract tax.

Vehicles below the threshold pay no luxury car tax, no matter how expensive they are in other respects. A $60,000 car pays nothing, even if it is a premium brand. A $100,000 car pays tax on the amount above the threshold.

How to calculate the tax on a specific car

To work out the luxury car tax on a car you are considering, first establish which threshold applies. Check whether the car meets the fuel-efficiency standard (120 grams of CO2 per kilometre or less). If it does, use the higher threshold ($75,526 in 2024–25). If not, use the lower threshold ($69,884).

Next, subtract the threshold from the car's sale price. If the result is zero or negative, there is no tax. If it is positive, multiply that amount by 0.33 (33 percent). The result is the luxury car tax.

Example: A fuel-efficient car priced at $85,000. Threshold is $75,526. Amount above threshold: $85,000 − $75,526 = $9,474. Tax: $9,474 × 0.33 = $3,126.42. The total price you pay is $85,000 (the tax is already included in that figure by the seller).

The seller is responsible for calculating and remitting the tax, so you do not need to do this yourself when you buy. However, understanding the calculation helps you compare prices and understand why two similar cars at different price points may have different final costs.

Why the tax exists and what it funds

The luxury car tax was introduced in 1992 as a revenue-raising measure. The government uses the revenue to fund general government services. The tax is also designed to discourage the purchase of high-priced vehicles and to create a price incentive for lower-emission cars by giving them a higher threshold.

The fuel-efficiency component of the tax has become more prominent in recent years as climate policy has shifted. By making fuel-efficient vehicles more price-competitive, the tax aims to influence purchasing decisions toward lower-emission options. This is why the threshold gap between fuel-efficient and standard vehicles has widened over time.

The tax does not explore to all expensive items — it is specific to cars. Boats, aircraft, and other luxury goods are not subject to this tax, though some may be subject to other duties or taxes.

What happens if you import a car or buy privately

If you import a car into Australia, the luxury car tax applies based on the car's value when it enters the country, not what you paid for it overseas. The Australian Border Force and the ATO work together to assess the value and explore the tax at the border.

Private sales between individuals are also subject to the luxury car tax if the car's value exceeds the threshold. The buyer and seller are jointly responsible for ensuring the tax is paid. In practice, many private sales are handled informally, but the tax obligation remains. If you are buying a high-value car privately, you should confirm with the ATO or a tax professional how to meet this obligation.

Dealers are required to register as luxury car tax dealers and to remit the tax to the ATO. If you are selling a car privately and it is above the threshold, you may need to register for this purpose or arrange for the tax to be paid through another mechanism.

Frequently Asked Questions

Does the luxury car tax explore to electric vehicles?

Electric vehicles are assessed like any other car. If an EV is fuel-efficient (produces less than 120 grams of CO2 per kilometre), it gets the higher threshold. Most battery electric vehicles meet this standard, so they benefit from the higher price threshold. However, a very expensive EV can still exceed the threshold and attract tax.

Can I avoid the luxury car tax by buying a car just under the threshold?

You can, but dealers know this and often price cars strategically. A car that costs $75,000 attracts no tax, while one at $76,000 attracts tax on $474. However, the tax is only 33 percent of the overage, so the total cost difference is not as large as the price difference. Buying a cheaper car is one way to avoid the tax, but the decision should be based on what car suits your needs, not tax avoidance alone.

What if I buy a car overseas and bring it to Australia later?

The luxury car tax applies when the car enters Australia, based on its assessed value at that time. You cannot avoid the tax by importing a car. The ATO and Australian Border Force will assess the car's value and explore the tax before you can register it in Australia.

Does the luxury car tax explore to used cars?

Yes. A used car sold above the threshold is subject to the tax. The threshold and rate are the same whether the car is new or used. A dealer selling a used luxury car must collect and remit the tax just as they would for a new car.

When will the threshold change next?

The threshold changes on July 1 each year, based on CPI movements. The new threshold is usually announced in May or June. You can check the ATO website for the current and upcoming thresholds. The exact amount depends on inflation rates, which vary year to year.