Ask most people what the luxury car tax threshold is and you will get a number somewhere near ninety grand. For almost every performance car sold in Australia, that number is wrong by about eleven thousand dollars, and the gap is the single most expensive misunderstanding in new car buying.

There are two thresholds, most sporty cars are locked out of the higher one by a rule that changed in July 2025, and the calculation has a step that motoring coverage routinely skips. There is also the $120,000 electric vehicle threshold you read about earlier this year, which has not actually happened and will not for some time.

The Two Numbers That Apply Right Now

For the 2026-27 financial year the Australian Taxation Office sets the threshold at $91,661 for fuel-efficient vehicles and $80,809 for everything else. Above whichever one applies to your car, the rate is 33 per cent. The year before, those figures were $91,387 and $80,567.

The threshold is measured against the GST-inclusive value of the car, and that value deliberately excludes other Australian taxes, fees and charges. Stamp duty and registration sit outside it, so the drive-away figure on the windscreen is not the number the tax is worked out from. Options, accessories and attachments supplied at the same time as the car are inside it, which is how a mid-spec car with a few boxes ticked crosses a line the base car clears comfortably.

What is the luxury car tax threshold in Australia?

For 2026-27 it is $91,661 for a fuel-efficient vehicle and $80,809 for any other car, with 33 per cent applying to the value above that line. Both figures are indexed and change on 1 July each year, so a car quoted in June and delivered in July can face a different threshold. If you are working out what a car really costs you across its life, this is one line item among many.

The 3.5 Litre Rule That Shut Performance Cars Out

The higher threshold is the one worth chasing, and until recently a lot of ordinary cars reached it. A fuel-efficient vehicle used to mean combined fuel consumption of 7.0 litres per 100 kilometres or less, which plenty of diesels, hybrids and small-capacity turbo petrols could manage.

From 1 July 2025 that definition tightened to 3.5 litres per 100 kilometres. In practice that is plug-in hybrid and electric territory and nothing else. No conventional performance car gets near it, which means anything with a proper petrol engine now sits on the $80,809 threshold rather than the $91,661 one.

Nobody announced it as a tax increase, but that is the effect. A car that qualified under the old rule and does not qualify under the new one lost $10,852 of tax-free headroom overnight, which at 33 per cent is real money on the sticker.

It also quietly tilts the field. An electric performance car can clear the higher threshold on consumption alone while its petrol rival cannot, which is worth remembering the next time you see an electric and a petrol performance car compared on price.

The Step Everyone Skips in the Maths

The ATO’s method has four parts. Take the LCT value, subtract the threshold, multiply what is left by 10/11 to strip the GST out of it, then apply 33 per cent.

That 10/11 is the part most explainers drop, and dropping it overstates the tax by roughly ten per cent. On a $120,000 car it is the difference between $11,757 and $12,933, so it is not a rounding error.

Once both cars are above both thresholds the gap settles at a flat $3,256, which is the difference between the two thresholds run through the same formula. That is the standing penalty for driving something that burns petrol.

The $120,000 EV Threshold Has Not Happened

Earlier this year the motoring press reported a new $120,000 luxury car tax category for zero emissions vehicles, tied to the free trade agreement with the European Union. The category is real and it is in the agreement text. The timing reported around it was optimistic.

The Department of Foreign Affairs and Trade still lists the agreement as not yet in force. Negotiations have finished, but the agreement has not been signed, and DFAT expects signature in late 2026 or early 2027. After that comes legal review, translation into 24 EU languages, Council approval, Australian Federal Executive Council approval, a Joint Standing Committee on Treaties review, any domestic legislation, and European Parliament consent. DFAT says the parliamentary processes alone are expected to take up to another year.

Has the luxury car tax been abolished in Australia?

No. It survives the EU agreement, and the only change is a new $120,000 threshold for zero emissions vehicles, which is not in force. When it does arrive, an electric car priced above $120,000 saves a maximum of $8,502, and one priced at exactly $120,000 saves that same amount by dropping to nil. That is worth having, though it is smaller than the resale swing on the same car.

Why Utes Walk Past It

The tax only applies to something the law calls a car, and the definition is narrower than it sounds: a motor-powered road vehicle designed to carry a load of less than 2 tonnes and fewer than 9 passengers. A commercial vehicle designed mainly for carrying goods rather than passengers falls outside it, as do motor homes and campervans.

This is why a dual-cab can be specified into genuinely expensive territory and never attract a cent of luxury car tax, while a wagon at the same price pays. It is also part of the reason the $60,000 to $80,000 ute class has become the most fiercely contested part of the market.

The Exemptions Worth Knowing About

The most useful one for enthusiasts is age. The tax does not apply to a car that was not imported and was manufactured more than two years before the supply, or to a car that was imported more than two years before the supply. A two-year-old car changing hands is outside the system entirely.

The others are narrower. LCT does not apply where the buyer quotes an ABN in the approved format, to a car exported as a GST-free export, to vehicles registered for use as emergency vehicles, to modifications for people with a disability, or to an LCT value that has already had the tax paid on it.

What This Means If You Are Shopping

Work out which threshold your car sits under before you start ticking option boxes, because the jump from clearing the line to crossing it is where the money disappears. A car sitting a few thousand under $80,809 can be pushed over by a paint colour and a tow bar, and every dollar past the line costs an extra thirty cents in tax on top of itself.

Watch the 1 July change too. Both thresholds are indexed annually, so timing a delivery across the end of the financial year can move the number your car is measured against, in the same way that reading a run-out deal properly can change what you pay.

This is general information about how the tax works, not tax advice, and the ATO figures move every July. If real money is riding on the answer, check the current thresholds yourself and talk to a registered tax agent.