SIGNIFICANT changes to Luxury Car Tax (LCT) came into force on July 1, 2025 making it essential for car dealerships and their customers to be prepared. 

These changes will primarily affect vehicles which were previously classified as fuel efficiency vehicles (‘FEV’) and may result in more vehicles being subject to LCT or vehicles liable to increased LCT.

Steve Bragg

• The most notable change coming 1 July 2025 is the definition of a FEV. Currently, a vehicle is considered a FEV if it consumes no more than 7.0 litres of fuel per 100km (7l/100km). From 1 July 2025, that definition will change to 3.5 litres per 100km (3.5l/100km).
• As a result, some vehicles which currently qualify as a FEV will no longer qualify and therefore cannot adopt the higher threshold used for FEVs.
• As a reminder, LCT applies two thresholds, $91,387 for FEV and $80,567 for all other vehicles/non-fuel-efficient vehicles (‘non-FEV’).

To illustrate, let’s take the BMW 3 Series, this vehicle has a fuel efficiency of 6.5l/100km, therefore the vehicle would have qualified as a FEV prior to 1 July 2025. If we keep it simple and assume the LCT value is $95,436* (incl GST). The LCT prior to 1 July 2025 amounts to $1,215. However, from July 1, 2025, the vehicle no longer meets the criteria for a FEV (3.5l/100km). As a result, the threshold for non-FEVs being $80,567 must be applied when calculating the LCT. 

The new LCT payable amount is $4,460, an LCT increase of almost 370 per cent.

The additional LCT is payable for vehicles which:

a) Were previously defined as FEV for LCT purposes pre-July 1, 2025

b) LCT value was above the FEV threshold pre-July 1, 2025 and

c) No longer meet the definition of a FEV post-July 1, 2025

will result in an additional $3,246 of LCT on top of the LCT already payable using the old thresholds.

Paul Kennedy

In light of the above changes, we encourage car dealerships to:

• Review their stock to identify which vehicles will be affected by these changes. These are:

• • Previously exempt vehicles due to the vehicle being considered FEV under the old rules and were below the relevant threshold but will no longer be classified as a FEV.
  • FEV above the threshold, which are no longer classified as FEV vehicles
• Once these vehicles are identified, enquire whether contracts and invoices for these vehicles have been finalised prior to 1 July 2025.
• Talk to your customers who have recently test driven these cars or are interested in the vehicles identified and inform them of the potential LCT impact if this vehicle no longer qualifies as a FEV.
  
• Ensure the date of taxable supply is clear in contracts and invoices prior to 1 July 2025.
• Check with finance companies to ensure invoice and contracts were finalised before this date. If taxable supply occurred post July 1, ensure your contract price and invoice amounts were correct based on the new changes July 1, 2025.
• Ensure your employees are aware of the changes, and that customers are not charged LCT when in fact they should be. Remember, the onus for LCT is on the dealership, not customers.
• Be more cautious of the vehicles that are affected by the changes when deciding which vehicles to demo (as once they do so LCT is payable).
• Check the OEM website and dealer website price configuration calculators are updated for the above LCT changes.
• Contact the OEM to see if they have reduced the pricing or are offering marketing assistance to offset the potential increased LCT applicable for previously FEV qualified models.

*Note the vehicles mentioned above are subject to model variants.