Luxury Car Tax is one of the less frequently encountered taxes in everyday bookkeeping, but when it appears — typically on a business vehicle purchase or in a dealer's accounts — it demands careful handling. LCT sits on top of GST and interacts with the car cost limit in ways that restrict both input tax credits and depreciation claims to a level well below the vehicle's actual acquisition cost.
What LCT Is and How It Is Calculated
Luxury Car Tax is levied at 33% of the amount by which a car's GST-inclusive value exceeds the LCT threshold. The threshold is indexed annually:
- 2024-25 LCT threshold (standard vehicles): $80,567
- 2024-25 LCT threshold (fuel-efficient vehicles, defined as ≤7L/100km): $91,387
LCT is a tax on the supplier (the dealer or importer who makes the taxable supply of the vehicle), not on the purchaser — but the economic cost is typically passed through in the sale price. The LCT is calculated on the GST-inclusive amount above the threshold, then multiplied by 33%.
Example: A vehicle with a GST-inclusive retail price of $110,000.
- Amount above threshold: $110,000 − $80,567 = $29,433
- LCT payable: $29,433 × 33% = $9,713
The dealer remits the LCT to the ATO via the BAS. LCT is separate from GST — it is reported at label 7C on the BAS, not at GST labels G1–G20.
The Car Cost Limit: Where the Deduction Cap Bites
The car cost limit (also called the luxury car limit or the depreciation limit) is a separate legislative restriction under s.40-230 of ITAA 1997 and the Input Tax Credit rules under s.69-10 of the GST Act. For 2024-25, the car cost limit is $68,108.
A business purchasing a vehicle above the car cost limit cannot claim:
- A GST input tax credit above 1/11th of $68,108 (i.e., no more than $6,192 ITC), regardless of the actual GST on the purchase.
- A depreciation deduction on the portion of cost above $68,108. The vehicle is depreciated as if it cost $68,108.
Note that the car cost limit is below the LCT threshold. This means there is a band of vehicles — those priced between $68,108 and $80,567 — where the car cost limit restricts ITC and depreciation claims even though no LCT applies. A $75,000 vehicle does not attract LCT but the business buyer still cannot claim GST or deductions above the car limit.
For a vehicle at $110,000:
- Actual GST embedded: approximately $10,000 (of the $110,000 GST-inclusive price)
- Claimable ITC: $6,192 (1/11th of $68,108)
- ITC foregone: approximately $3,808
- Depreciable value (prime cost or diminishing value): $68,108 — not $110,000
The un-deductible portion of the vehicle cost (above $68,108) forms part of the vehicle's cost base for CGT purposes, deductible only on disposal.
Dealer Bookkeeping: LCT on Acquisition and on Sale
Car dealers who sell luxury vehicles are both payers of LCT (on acquisition of LCT-applicable vehicles) and collectors of LCT (remitting on behalf of the supply to the final customer). Dealer bookkeeping must track LCT at both ends of the inventory cycle.
When a dealer acquires a new vehicle from a manufacturer at wholesale:
- The wholesale price includes LCT embedded by the manufacturer/importer.
- The dealer may be entitled to a LCT credit on the wholesale acquisition if it is reselling the vehicle.
When the dealer sells:
- The dealer calculates LCT on the taxable sale value (GST-inclusive retail price above the threshold × 33%).
- That LCT is reported at label 7C of the dealer's BAS.
A vehicle in dealer stock should be carried at cost in inventory. LCT paid on acquisition that is creditable on resale is a recoverable input, not a cost. Separate tracking of the LCT credit position (acquisition LCT paid less LCT remitted on sales) is necessary for accurate BAS preparation.
Novated Leases and LCT
Under a novated lease arrangement, the employer makes lease payments on the employee's behalf from pre-tax salary. LCT applies at the commencement of the lease — the financier/lessor acquires the vehicle and the LCT liability arises at that acquisition point.
From the employer's bookkeeping perspective:
- The FBT base value of a car under a novated lease is the GST-inclusive acquisition cost of the vehicle (including LCT), reduced by the car cost limit where applicable.
- Salary sacrifice payments made by the employer are deductible; the FBT liability arising from the arrangement is also deductible.
- The employee's post-tax contributions (the employee contribution method) reduce the FBT taxable value.
The car cost limit applies equally in the novated lease context — the FBT car base value is capped at $68,108 (indexed) regardless of the vehicle's actual purchase price. LCT does not alter this cap.
Used Luxury Vehicles: LCT Can Apply Again
LCT can apply to second-hand vehicles where both of the following are true:
- The vehicle's GST-inclusive market value at the time of the sale exceeds the current LCT threshold.
- The vehicle has not previously been subject to LCT — for example, it was imported for private use before the LCT regime applied, or was sold below the threshold when new but has since appreciated (unusual but possible for prestige marques).
Most second-hand prestige vehicle transactions do not meet both conditions — the vehicles were subject to LCT on their original supply. However, dealers trading in parallel-import vehicles or grey-market prestige cars should verify the LCT history of the vehicle before assuming it is LCT-free.
Bookkeeping Entries and Account Structure
For business vehicle purchases, maintain the following account structure:
- Vehicle at cost (non-current asset): limited to $68,108 for the deductible/depreciable amount.
- Non-deductible vehicle cost (if desired, tracked separately for CGT cost-base purposes).
- GST receivable: ITC limited to 1/11th of $68,108.
- Vehicle loan or finance lease liability: full balance of the financing obligation.
The difference between the actual acquisition price and the deductible amount effectively disappears into a non-deductible balance — it is not expensed, not depreciated, and not ITCed. Tracking it separately ensures the CGT cost base calculation is accurate when the vehicle is eventually sold.