Australia has agreed to ease the Luxury Car Tax – which generates $1.1 billion for the government annually – to get a free-trade deal with Europe over the line, but only for electric cars.
The controversial Luxury Car Tax has survived the signing of a Free Trade Agreement between Australia and the European Union long expected to spell its demise.
However, the minimum price of electric cars hit by the 33 per cent tax will rise from $91,387 to $120,000, in a concession to retain much of the $1.1 billion the levy generates for the Federal Government each financial year.
It will cut the number of electric vehicles slugged with LCT by a third, and will reduce the price of the rest by about $8500, from $150,000 Audis to the $933,000 Rolls-Royce Spectre.
It is yet to be confirmed when the change will be introduced, but it is likely to come into force soon after the specifics of the Free Trade Agreement are locked in.
The free-trade deal between Australia and the EU was signed today by Prime Minister Anthony Albanese and EU Commission President Ursula von der Leyen, after talks were revived in recent months.
It will first remove a 5 per cent import tariff on the import value of European-made cars, which currently applies to electric vehicles above the LCT threshold, and all other models irrespective of price.
The axing of Luxury Car Tax – a 33 per cent levy on a new vehicle's price above a certain threshold – has long been seen as a key pillar of the agreement, given most vehicles it affects are produced in Europe.
It has been used as a negotiating tool to unlock greater access for Australian agricultural exports into Europe.
Rather than drop the tax entirely, the Federal Government will introduce a "new Luxury Car Tax category" with a price threshold of $120,000 for "zero-emissions vehicles".
Retained will be the existing thresholds for fuel-efficient vehicles with claimed fuel consumption of 3.5L/100km or less, and all other cars, currently pegged at $91,387 and $80,567, respectively.
At present, electric vehicles are counted under the fuel-efficient vehicle threshold, the value of which, like its regular counterpart, is linked to increases in the Consumer Price Index.
Increasing the threshold from $91,387 to $120,000 will reduce the number of electric vehicles hit by LCT from 97 to 61, including models currently only priced above $120,000 because they are hit by the levy.
Among them will be the new BMW iX3 and i3 electric cars, the replacements for popular luxury models that found success with buyers as they were priced below the LCT threshold, so they could unlock a lucrative exemption from Fringe Benefits Tax.
The FBT exemption currently applies to electric vehicles purchased through a novated lease – where the car is paid for from an employee's pre-tax salary – that do not attract Luxury Car Tax, and reduces prices by about 33 per cent.
It is unclear if the free-trade deal will see changes made to the FBT exemption, the future of which is already under review.
Electric vehicles priced above $120,000 will incur less LCT as part of the threshold change, estimated at up to $8584.
Luxury Car Tax was introduced in 1999 to replace an earlier set of taxes on high-priced vehicles, and has proved difficult for policymakers in Canberra to drop.
It is estimated to generate $1.13 billion in tax revenue for the Federal Government this financial year.
However, in recent times, much of the windfall has come from popular high-grade versions of Toyota petrol and diesel family SUVs, rather than Ferraris and Porsches, which are more expensive but sell in far smaller numbers.
Alex Misoyannis has been writing about cars since 2017, when he started his own website, Redline. He contributed for Drive in 2018, before joining CarAdvice in 2019, becoming a regular contributing journalist within the news team in 2020. Cars have played a central role throughout Alex’s life, from flicking through car magazines at a young age, to growing up around performance vehicles in a car-loving family. Highly Commended - Young Writer of the Year 2024 (Under 30) Rising Star Journalist, 2024 Winner Scoop of The Year - 2024 Winner
