Australia’s Luxury Car Tax Could be Gradually Removed
The Australian government is reportedly considering a gradual phase-out of the Luxury Car Tax (LCTStopStop.AL stop stopStopford May 23 2025 – 10:39am
The Australian Government is considering a gradual phase-out of the Luxury Car Tax (LCT) to minimize the impact on vehicle resale values. This move is part of ongoing trade negotiations with the European Union to establish a free-trade agreement (FTA).
The decision comes after car dealers and automakers warned that sudden removal of the LCT could lead to a rapid collapse in vehicle resale values. The Albanese government is assessing a progressive lowering of the controversial tax as part of the FTA negotiations.
Background on Luxury Car Tax
The LCT adds 33% to any part of a vehicle’s price above the LCT threshold, currently set at $91,387 for fuel-efficient vehicles and $80,567 for other vehicles. The tax has been a point of contention in Australia-EU trade talks, with the EU pushing for its abolition for at least five years.
Removing the LCT would satisfy the EU, particularly as European brands face tariffs in the US market imposed by President Donald Trump. Around 40% ($480 million) of the total $1.2 billion annual LCT revenue comes from European vehicle sales.
Potential Consequences and Alternatives
With the LCT removed, the Australian Government will need to find alternative revenue sources. One possibility is a road user charge, which could see vehicle owners pay based on distance traveled, with revenue invested in road maintenance and infrastructure.
Critics argue that removing the LCT would benefit wealthy buyers of European cars while potentially increasing costs for average Australians through other taxes or charges. Nationals Senator Matt Canavan criticized the move, stating it would be “giving a massive free kick to people who can afford very expensive European cars.”
Industry Perspectives
The Australian Automotive Dealer Association (AADA) has called for the complete abolition of the LCT, describing it as a “relic of an era when Australia manufactured vehicles.” They argue it imposes unnecessary taxes on many vehicles, particularly more expensive lower-emitting and electric vehicles.
The AADA suggests reforms such as raising the threshold to target truly luxury vehicles, exempting low-emission vehicles, and excluding accessories from LCT calculations. The debate around the LCT reflects broader discussions on automotive taxation and environmental policies in Australia.
Conclusion
The potential gradual removal of the Luxury Car Tax is a complex issue, balancing trade negotiations with domestic economic and environmental considerations. As Australia navigates its trade relationships and automotive policies, the fate of the LCT remains uncertain, with various stakeholders advocating for their interests.
