Australia’s Luxury Car Tax: A Complex Debate
The Australian government has reignited debate over the Luxury Car Tax (LCT), a 33% levy on vehicles priced above certain thresholds, as it considers abolishing the A$5.2 billion tax to secure a trade deal with the European Union. Meanwhile, new legislation is set to increase tax bills for many hybrid and plug-in hybrid electric vehicle (PHEV) owners.
What is the Luxury Car Tax and Who Pays It?
From July 1, 2025, any car with a GST-inclusive value above the LCT threshold will incur a 33% tax on the excess amount. For 2024-25, the thresholds are:
- Fuel-efficient vehicles: A$91,387
- All other vehicles: A$80,567
For example, a family purchasing a luxury SUV for A$100,000 will pay LCT of approximately A$6,414 on top of the sticker price, calculated as (100,000 − 80,567) × 0.33.
Tougher ‘Fuel-Efficient’ Test Means More Cars Taxed
The Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025 tightens the definition of ‘fuel-efficient’ vehicles from 7 L/100 km to 3.5 L/100 km. Only full electric vehicles (EVs) and plug-in hybrids now qualify for the higher A$91,387 threshold, while all other hybrids and petrol cars face the lower A$80,567 limit. This change pushes more models into LCT territory.
Real-World Impact on Buyers and Dealerships
Shoppers targeting popular family hybrids, such as the Toyota Kluger or Mazda CX-60, will find LCT added to their bill, potentially amounting to thousands of dollars more. Dealers are required to include LCT in the advertised price, which may squeeze their margins or lead to passing the costs to buyers. Vehicles priced just above the threshold incur the full 33% tax on the excess amount.
Ute Loophole Drains A$250 Million: Who Really Pays?
A loophole exempts ‘commercial vehicles’ (dual-cab utes) from LCT, costing taxpayers an estimated A$250 million annually. Wealthy individuals exploit this by registering luxury SUVs as commercial vehicles. Critics argue that closing this loophole would curb high-emission ute sales without affecting genuine business users.
Will LCT Survive New Trade Deals?
To secure an EU free-trade pact, Prime Minister Albanese has offered to abolish LCT if Europe opens its markets to Australian farmers. While success could eliminate the 33% levy, it is contingent upon lengthy negotiations. In the meantime, buyers should prepare for higher costs from July 2025.
Expert View: Balancing Revenue and Emissions
Economists warn that scrapping LCT removes an incentive to purchase greener cars, while critics argue that the current tax hinders EV uptake. Some propose shifting to a carbon-based vehicle tax, charging by CO₂ emissions rather than price, which could better align with Australia’s net-zero goals.
