CHANGES to the luxury car tax are on the way with the federal government treasury announcing a new definition of LCT in a document for public discussion titled ‘Treasury Laws Amendment Fairer for Families and Farmers Bill 2024: LCT’

The changes – which reduce the ability of ICE vehicles to escape LCT and which favour EVs and PHEVs –  are proposed in the government’s draft legislation designed “to modernise” the LCT but not necessarily help manufacturers and dealers.

In its 2023–24 ‘Mid‑Year Economic and Fiscal Outlook’, the government announced that from July 1, 2025 it would tighten the definition of a fuel‑efficient vehicle; and align the indexation rate for LCT thresholds.“By encouraging uptake of fuel‑efficient vehicles, these measures support the Australian government’s National Electric Vehicle Strategy; the commitment to reduce greenhouse gas emissions by 43 per cent by 2030; and the commitment to achieve net zero emissions by 2050,” the Treasury’s statement said on announcing the LCT changes.

Parties have until October 16, 2024 to respond to the proposals.

There is no acknowledgement in the proposal of active lobbying by automotive bodies to remove LCT in its entirety, confirming that Canberra sees the tax as a permanent feature of the tax system.

The federal government has two thresholds for the LCT:

• a higher threshold that applies to fuel‑efficient vehicles and
• a lower threshold that applies to all other luxury vehicles.

“Cars with a value over the relevant threshold attract an LCT rate of 33 per cent,” it said.

“The maximum fuel consumption for a fuel‑efficient vehicle will halve to 3.5 litres per 100 km. 

“This means only electric, or partially electric, vehicles can use the higher threshold.”

The LCT threshold is currently 7.0 L/100km. 

The Australian Automotive Dealer Association (AADA) told GoAutoNews Premium that while it welcomes the opportunity to participate in consultations with the government “it’s frustrating that we even still have a LCT.”

AADA CEO James Voortman said that the association has consistently called for it to be abolished “or at a minimum significantly reformed so that it captures genuine luxury cars.”

James Voortman

“Unfortunately, what we are seeing now is the government reforming it in a way that it will raise more revenue from buyers of more efficient vehicles such as hybrids,” he said.

“The best way the government can use the LCT to achieve a 43 per cent reduction in greenhouse gas emissions by 2030 is by abolishing the tax altogether.”

He said that through abolition, the government could claw back almost an additional $100 million a year.

“It is inflationary and will dissuade consumers from buying vehicles with the best safety and fuel-efficient technology,” he said.

“The AADA has long called for the alignment of indexation for the different thresholds between the fuel efficiency category and the regular category and we commend the government for taking this step.”

“So many independent reviews and inquiries have called for the LCT to be abolished, but instead it continues to raise over a billion dollars a year at the expense of motorists and local industry.

“For years the automotive industry and motorists have been calling for a root and branch review of the automotive taxation regime. We need to consider all automotive taxes during this time of profound change.”

Tony Weber, the CEO of the Federal Chamber of Automotive Industries (FCAI) said in a statement: “Australian motorists are being penalised by more than $1 billion annually to the Treasury for choosing to buy vehicles that have advanced safety and environmental features.

“Rather than making amendments, it is time for the Government to remove this outdated and punitive tax,” he said.

Tony Weber

In its proposal, the government said that the changes aim to “incentivise the take-up of fuel efficient vehicles and EVs and ensure the concessional treatment of fuel-efficient cars is consistent with the Australian Government’s National Electric Vehicle Strategy (NEVS).”

It also said that there was a fall-off in eligible vehicles based on the fuel-consumption figure, indicating less income was being received, which has led to the halving of the eligibility of ICE vehicles and the “incentivisation” of EVs and PHEVs.

Despite claiming it is seeking low-emission vehicles to reduce gas emissions by 43 per cent by 2030 in its path to net-zero emissions by 2050, and that ICE fuel consumption figures have improved since the 2008 introduction of the LCT, the Treasury proposal clearly states that the LCT will be increased.

It will now increase the LCT on “fuel efficient cars” to a threshold of $91,387, up from the 2008 rate of $75,000.

Meanwhile, other vehicles will have the LCT threshold of $80,567, up from $57,180 in 2008.

The LCT is charged at 33 per cent on the difference between the vehicle’s new price and the threshold.