When it comes to splashing out on a new sports car or a piece of fine jewellery, Australians have always faced a little extra at the checkout: the luxury tax. In 2025, the rules around what counts as ‘luxury’ and how much tax is owed are shifting, with fresh thresholds, new focus areas, and a growing debate about fairness and economic impact. Whether you’re a car enthusiast, a business owner, or simply curious about where your tax dollars go, here’s a deep dive into the latest developments in Australia’s luxury tax landscape.
What Is the Luxury Tax and Why Does It Exist?
The luxury tax is an additional levy imposed on certain high-value goods. In Australia, the most prominent example is the Luxury Car Tax (LCT), but similar concepts apply to imported designer fashion, jewellery, yachts, and even some watches. The tax aims to generate revenue and, in some cases, curb conspicuous consumption by making luxury goods less accessible.
- Luxury Car Tax (LCT): Applies to vehicles above a set threshold, with a higher rate for fuel-inefficient cars.
- Other luxury goods: While not subject to a specific ‘luxury tax’, high-value imports can attract higher duties and GST, especially if not covered by free trade agreements.
Originally designed to protect domestic car manufacturing, the LCT now serves a broader revenue purpose, as local manufacturing has ceased.
2025 Updates: New Thresholds and Policy Shifts
This year, the Australian Government has made several tweaks to luxury tax settings, reflecting inflation and changing consumer patterns.
- LCT Threshold Increase: For the 2025-26 financial year, the LCT threshold for fuel-efficient vehicles is set at $92,500 (up from $89,332), while for other vehicles it’s $78,000 (up from $76,950). This means more cars are exempt from LCT than before, but high-end models are still firmly in the firing line.
- Electric and Hybrid Vehicles: As part of the drive towards net zero, the LCT for electric vehicles (EVs) remains more lenient, with a higher threshold and some state-level incentives that may further reduce effective tax paid.
- Broader Tax Review: The Federal Treasury is reviewing the future of luxury taxes as part of a wider tax reform agenda, with public consultations underway on whether the LCT is outdated or should be restructured.
For non-car luxury goods, there are no major new ‘luxury taxes’, but customs duties and GST on items like designer bags, watches, and jewellery remain unchanged. However, importers and online shoppers should watch for changes in free trade agreements that could affect final prices.
Who Pays, and How Can You Minimise the Impact?
If you’re in the market for a luxury car or high-end import, understanding the rules can make a real difference to your bottom line.
- Car Buyers: LCT is applied to the GST-inclusive value above the threshold at a rate of 33%. For example, a $120,000 luxury SUV (non-fuel-efficient) would attract LCT on $42,000, adding $13,860 to the price. EV buyers may benefit from higher thresholds and state-based rebates.
- Businesses: Some businesses, such as car dealerships or those using vehicles for GST-creditable purposes, may be able to claim back some of the GST but not the LCT. Structuring purchases smartly matters.
- Importers and Shoppers: Buying luxury goods from overseas? You’ll still pay GST on imports over $1,000, and potentially higher duties on items not covered by free trade agreements. There’s no equivalent to the LCT on non-car goods, but ‘luxury’ items can still attract extra scrutiny at customs.
Planning purchases around threshold changes, or choosing more efficient vehicles, can help. For example, opting for a fuel-efficient model just under the threshold can save thousands.
Real-World Examples and the Debate Ahead
In 2025, a growing number of Australians are finding themselves facing luxury tax, not just the ultra-wealthy. The popularity of imported SUVs and EVs means even families upgrading to a safer or greener vehicle may cross the LCT line. Meanwhile, collectors of watches and jewellery are seeing customs duties and GST add up on top of already steep prices.
There’s also a policy debate simmering. Critics argue the LCT is a relic of a bygone era, especially since Australia no longer manufactures cars domestically. Others defend it as a progressive tax that targets discretionary spending. The government’s ongoing review will likely shape the future of luxury tax for years to come.
