How to Stay Compliant with Luxury Car Tax (LCT) in Australia

Luxury Car Tax

Introduction

If your business deals in high-end vehicles, Luxury Car Tax (LCT) should be firmly on your radar.

The LCT is a specialised tax in Australia that applies to cars exceeding specific value thresholds, and failing to comply can lead to serious consequences — including audits, penalties, and even prosecution.

How to Stay Compliant with Luxury Car Tax (LCT) in Australia

In this blog, we break down everything you need to know about Luxury Car Tax compliance, highlight common mistakes, and offer practical tips to safeguard your business.

We’ll also include short case studies to illustrate how real-world businesses have navigated this regulatory terrain.

What Is Luxury Car Tax?

LCT is a tax levied on cars sold or imported into Australia that exceed certain luxury thresholds. As of the 2024–25 financial year, the LCT is set at 33% of the GST-inclusive value of a car above:

  • $80,567 for standard vehicles
  • $91,387 for fuel-efficient vehicles (defined as having a fuel consumption of no more than 7L/100km)

(Source: Australian Taxation Office – LCT rates and thresholds)

When Should You Quote Your ABN?

Businesses may defer Luxury Car Tax obligations by quoting their Australian Business Number (ABN) to the supplier under specific circumstances.

This process, called “quoting,” applies when:

  • You have a valid ABN and are registered for GST
  • You are a luxury car dealer purchasing vehicles solely as trading stock
  • The car is acquired for research and development on behalf of a manufacturer
  • The car is intended to be exported GST-free

Example:

Emma operates a prestige car dealership in Melbourne. She quotes her ABN when purchasing luxury vehicles to avoid Luxury Car Tax at the point of sale. However, if a vehicle is later used for promotional purposes (such as an extended test drive), she must adjust her BAS accordingly.

Luxury Car Tax
Luxury Car Tax

Tip: Always verify the ABN and GST registration status of the quoting party via the Australian Business Register and retain supporting documentation, such as a motor dealer licence.

If there is any doubt about the legitimacy of the quote, it may be safer not to accept it.

Record-Keeping: A Key to Compliance

Maintaining accurate and complete records is essential not only for transparency but also for substantiating your Luxury Car Tax claims or adjustments on your Business Activity Statement (BAS).

Required Documents Include:

  • Proof that your business is actively trading in luxury vehicles
  • Acquisition/importation records and proof of payment
  • Documentation detailing the vehicle’s use while in your possession
  • Sale, export, or resupply records

Failure to maintain these records may result in denied claims and increased scrutiny from the ATO.

Reporting and Claiming Correctly

LCT must be reported in the same tax period as GST.

Common reporting mistakes include:

  • Using outdated Luxury Car Tax thresholds or incorrect formulas
  • Delaying reporting after selling or using a car for a non-quotable purpose
  • Incorrectly claiming full GST credits for both GST and Luxury Car Tax

Case Study:

Raj owns a car import business in Sydney. After importing a vehicle, he incorrectly used the 2023–24 LCT threshold instead of the updated 2024–25 figure. The ATO audit revealed this error, resulting in penalties and interest charges. Accurate reporting using current thresholds would have avoided the issue.

Luxury Car Tax
Luxury Car Tax

ATO Compliance Focus: Risk Behaviours and Penalties

The Australian Taxation Office (ATO) actively monitors luxury vehicle transactions for fraudulent or non-compliant activity.

According to ATO guidance, the following behaviours are under scrutiny:

  • Resellers evading LCT and GST to undercut legitimate dealers
  • Individuals disguising private purchases as business transactions to obtain LCT/GST benefits
  • Dealers falsely declaring cars as stock while using them for personal or extended test drives
  • Criminal networks using the luxury vehicle industry to launder money or commit tax fraud

(Source: ATO – LCT compliance focus)

Legal Consequences:

Engaging in such behaviours can result in:

  • Administrative penalties
  • Interest charges
  • Prosecution under tax fraud provisions

What to Do If You’ve Made an Error

If you suspect your business has participated in non-compliant arrangements — whether knowingly or unintentionally — it’s essential to act swiftly.

Recommended Actions:

  1. Apply for a private ruling from the ATO for clarity on your obligations
  2. Seek independent legal or tax advice
  3. Make a voluntary disclosure to the ATO — penalties are generally reduced if disclosure is made before an audit begins

Best Practices for LCT Compliance

To stay on the right side of the ATO and protect your business reputation:

✔️ Quote your ABN correctly

Only quote if you’re entitled and always verify third-party ABNs.

✔️ Keep comprehensive records

Ensure your files include acquisition, usage, and resupply details.

✔️ Stay up to date

Use the latest LCT thresholds and tax rates.

✔️ Train your staff

Ensure your finance, sales, and admin teams are aware of Luxury Car Tax rules.

✔️ Consult a tax advisor

A registered tax agent can guide you through complexities and avoid common pitfalls.

Luxury Car Tax
Luxury Car Tax

To Wrap Up…

Luxury Car Tax compliance is more than just a box to tick — it’s a vital component of your business’s financial and legal integrity.

Whether you’re a dealer, importer, or business purchasing a high-end vehicle, understanding your obligations around Luxury Car Tax can help avoid unnecessary costs, ATO scrutiny, and damage to your reputation.

By maintaining proper records, reporting correctly, and staying informed of the latest ATO guidelines, you can ensure smooth and compliant operations in the luxury vehicle space.

Need help with your LCT obligations? Reach out to a qualified tax advisor or contact Southern Cross Accounting for tailored advice.

Disclaimer For External Distribution Purposes

The information contained in this publication is for general information purposes only, professional advice should be obtained before acting on any information contained herein. The receiver of this document accepts that this publication may only be distributed for the purposes previously stipulated and agreed upon at subscription. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.

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