What Is the Luxury Car Charge in Novated Leasing?
Leasing a car above the ATO’s luxury threshold? Here's what the Luxury Car Charge means for your take-home pay.
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 2024–25).
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 2024–25 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 is the Luxury Car Charge calculated?
When a car goes over the depreciation threshold shown above:
- The ATO requires your employer to treat the lease as a loan.
- That means they can only claim interest and depreciation on the car, not the full lease payments.
- This usually leads to a higher taxable income for the employer.
To compensate for that extra tax, the employer deducts a Luxury Car Charge from your salary package.
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 $76,950 for most cars, and $89,332 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 2024–25.
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.
Related Information:
FBT is a tax (with a rate at 47%) applied to fringe benefits (incentives beyond salary/wages received from an employer). A non-electric car under a novated lease is a fringe benefit (electric cars are completely FBT exempt in Australia).
The employer is responsible for paying the FBT, but at Clear Lease - we use the employee contribution method (contributing post-tax funds) to offset any FBT to zero.
Our regular novated lease package (fully-maintained) usually includes your car lease repayments, fuel/charging, servicing, maintenance & repairs, registration, insurance, and tyres - all bundled into a single pre-tax deduction.
Yes, but it’s treated as a financial termination. You'll need to pay out the remaining lease value (and any fees), and you may lose some tax benefits. Talk to us to get a payout quote from your financier.
No, when your employer leases the car, they claim the GST credit, meaning you don’t pay GST on the purchase price. The same applies to most running costs. You will, however, pay GST if you buy the car at lease end.
Yes, if you’d like to keep the car, you simply pay the residual value set at the beginning of the lease. You can pay this from your personal funds, or refinance it separately. Once paid, the car is yours. You can also sell or trade it in and start a new lease.
Yes, if your new employer supports novated leasing, you can transfer your lease by signing a new agreement. If they don’t, you’ll need to make private repayments, refinance, or consider ending the lease.
Your lease doesn’t end if you change jobs. You can either transfer it to your new employer, pay privately until the lease ends, or choose to end the lease early.
Cars that are too old, unroadworthy, imported, heavily modified, or intended for commercial use typically don’t qualify for novated leasing. Motorcycles are also excluded under current ATO guidelines.
Luxury Car Tax (LCT) applies to vehicles that exceed the government’s set price thresholds. For the 2024–25 year, it’s $76,950 for standard vehicles and $89,332 for fuel-efficient ones. If your lease includes a car above these values, LCT may be added to your lease costs.
Please note: This is very different to the Luxury Car Charge (LCC).