The removal of the controversial Luxury Car Tax (LCT) is under consideration by the government as leverage for Australian exports to gain a better foothold in Europe. This could mean that vehicles may become more affordable.
What is the Luxury Car Tax (LCT)?
The LCT is a federal tax applied to vehicles that exceed certain value thresholds. It was introduced in 2001 as a way to protect local vehicle manufacturing. No vehicles have been produced en masse in Australia since Ford shut its operations in 2016, and Holden and Toyota followed a year after.
From 1 July 2025:
- standard vehicles: LCT applies to the portion of the vehicle's value above $80,567; and
- fuel-efficient vehicles (consuming <3.5L/100km): LCT applies to the portion of the vehicle’s value above $91,387.
The tax rate is 33% on the value exceeding these thresholds.
Why might LCT be abolished?
Prime Minister Anthony Albanese's government is considering abolishing the LCT as part of efforts to finalise a free trade agreement (FTA) with the European Union (EU). The EU has viewed the LCT as a trade barrier, and its removal could facilitate better access for Australian agricultural exports to the EU market.
Potential benefits of abolishing LCT:
- Reduced Vehicle Prices
Eliminating the LCT could lower the cost of high-end vehicles, making them more accessible to consumers - Enhanced Trade Relations
Removing the LCT may strengthen Australia's trade ties with the EU, benefiting various sectors of the economy - Industry Support
Automotive industry groups have long advocated for the removal of the LCT, viewing it as outdated and a hindrance to market growth
Considerations for luxury vehicle owners
- Price Adjustments
If the LCT is abolished, owners of luxury vehicles may see a decrease in the market value of their cars, potentially affecting resale values - Market Dynamics
The removal of the LCT could lead to increased competition in the luxury vehicle market, influencing buying and selling decisions - Policy Timeline
As of now, the LCT remains in effect. Any changes will depend on the progress of trade negotiations and subsequent legislative actions
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