Key Takeaways
- The Luxury Car Charge (LCC) is an extra cost in a novated lease when the car’s price goes over the ATO’s set limit.
- It usually doesn't apply if your employer is a Not for Profit though.
- For 2025–26, the ATO luxury car limit is $69,674. Cars priced above this may attract the charge.
- The charge amount isn’t a fixed percentage, it depends on how far your car’s price goes over the limit and your lease setup.
- The charge exists because employers can’t claim full tax deductions on cars above the limit.
- If the LCC applies, it’s taken out of your salary package through payroll.
- The LCC is different from the Luxury Car Tax (LCT) - LCT is a government tax on all new car sales, while LCC is a leasing cost.
The Luxury Car Charge is an additional cost that applies when you lease a vehicle with a value that exceeds the Luxury Car Depreciation Limit set by the ATO (currently $69,674 in FY 2025–26).
It’s not a government tax. It’s a salary deduction passed onto you by your employer to cover their extra tax liability, because the ATO limits how much they can claim as a business expense on higher-value cars.
In simpler terms:
If your lease is for a "luxury" vehicle, your employer usually can’t claim the full lease as a tax deduction, so the Luxury Car Charge makes up the difference.
What’s the ATO’s depreciation limit?
The depreciation limit for “luxury vehicles” is set annually by the ATO. If your lease finances more than this amount, even by a small margin, the charge can apply.
For the 2025–26 financial year, it's $69,674. You can find the historic car limits below.
Source: ATO Car Depreciation Limits
Want to avoid or minimise the Luxury Car Charge?
- Choose a car with a finance amount below the ATO depreciation limit.
- If you're going over, ask us what impact the charge will have on your take-home pay. It can add up quickly,
Who does it apply to?
You may be affected by the Luxury Car Charge if:
- The financed value of your car exceeds the ATO’s depreciation limit.
- You work for a tax-paying employer (not-for-profits are usually exempt).
- Your car is under a novated lease agreement (not a standard car loan or purchase).
How much is the Luxury Car Charge?
The Luxury Car Charge (LCC) isn’t a fixed flat fee or percentage (like GST or LCT).
It’s essentially a salary deduction that matches the employer’s lost tax benefit when the car’s financed value goes above the ATO depreciation limit (currently $69,674 for 2025–26).
Here’s how it works:
- Employers can normally claim tax deductions on lease payments.
- But for cars above the ATO limit, the tax law caps deductions (only interest + depreciation up to $69,674).
- That means the employer is left with a tax shortfall on the “excess” value.
- The LCC = the extra tax cost passed back to the employee through salary packaging.
So the exact charge amount totally depends on:
- The car’s purchase/financed price vs. the $69,674 limit.
- How the lease is structured (term, residual, interest rate).
- Your employer’s taxable position (e.g. not-for-profits may not be affected).
We calculate it for you and just roll it into the salary package estimate.
Example Calculation:
If an employee’s salary without a Novated Lease is $100,000 pa, the employer will claim for taxation purposes expenses of $100,000.
If a Novated Lease is taken with lease rentals of $1,000 per month ($12,000 per year), the salary would normally be reduced from $100,000 to $88,000, and the employer would claim for taxation purposes expenses of $88,000 for salary and $12,000 for lease rental. This is a combined total of $100,000 and would be the same as if a Novated Lease had not been taken out.
If the amount financed of the Novated Lease was over the Luxury Vehicle Limit, the employer may only be able to claim $10,000 of the lease rentals as an expense for taxation purposes. The total claim would now be just $98,000 and they would have a tax liability on the $2,000 difference, say $600. The Luxury Charge offsets this additional tax liability.
Do I need to do anything to report the Luxury Car Charge?
When you work with Clear Lease, the charge is managed by us and your payroll team, and reported as part of your salary package.
However, if you’re an employer not working with us or handling this yourself, you'll need to seek professional accounting advice, as reporting can differ based on how the lease is structured.
The Luxury Car Tax vs The Luxury Car Charge, a Common Confusion:
When you're looking at a novated lease for a high-value car, you'll often hear about both the Luxury Car Tax (LCT) and the Luxury Car Charge. While they sound similar, they’re actually completely different things, and they impact your lease in different ways.
As a quick comparison:
The Luxury Car Tax (LCT)
Is charged by the Australian Tax Office (ATO) when a new car is sold for more than the LCT threshold (currently $80,567 for most cars, and $91,387 for fuel-efficient cars in 2024–25).
- It’s 33% on the value above the threshold.
- It’s usually built into the car’s drive away price, so you pay it whether you lease or buy.
- You can’t avoid it if the car is over the limit.
The Luxury Car Charge (LCC):
Is not a tax, but an extra payment applied specifically to novated leases when the financed amount exceeds the Luxury Vehicle Limit (again, this limit is different to the LCT threshold). This limit is currently $69,674 in 2025–26.
It exists because the ATO limits how much your employer can claim as a tax deduction for an employees lease, and if they can’t claim the full amount, they may pay more tax.
To make up the difference, they pass that cost back to you through a Luxury Car Charge, which gets added to your lease.
