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The fuel-efficient definition for the higher luxury car tax threshold should be limited to zero-emission cars only, the Australian Electric Vehicle Association has said.
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Vehicle association calls for stricter definitions with luxury car tax changes
03 February 2025
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8 minute read
Motor vehicle industry groups have weighed in on the government’s proposed changes to the luxury car tax (LCT) which will tighten the definition of a fuel-efficient vehicle and align the indexation rates for luxury car tax thresholds.
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If passed, Treasury Laws Amendment (Tax Incentives and Integrity) Bill 2024 will update the definition of a fuel-efficient car by reducing the maximum fuel consumption for a car to be considered fuel-efficient for the LCT to 3.5 litres per 100 kilometres from the current 7 litres per 100 kilometres.
This means the higher threshold that applies to fuel-efficiency luxury cars will apply to fewer types of cars in relation to the LCT.
The bill was referred to the Senate Economics Legislation Committee at the end of November, with the committee due to report this week.
In a recent submission, the Australian Electric Vehicle Association has urged the government to make the fuel-efficient car threshold more stringent by limiting it to zero-emissions vehicles only.
“This would make the legislation consistent with other Commonwealth tax legislation such as the FBT exemption, which is only available to zero emissions vehicles after April 1, 2025,” the association said.
The association noted that many plug-in hybrid vehicle models on the market will meet the 3.5L/100km rating criterion but will not achieve the expected emissions abatement in operation.
“Numerous studies in Europe, including a 2024 report by the European Environment Agency, found that the actual emissions from a large sample of PHEVs were, on average, 3.5 times higher than their type approval values,” it said.
The submission also noted that the Climate Change Authority’s Sector Pathways Review finds that Australia will likely need to fully decarbonise the passenger vehicle fleet by 2050 to meet the 2050 net zero target.
“Given that many cars remain on the road for 20 years or more, it is important that incentives encourage the purchase today of zero emissions vehicles over hybrids,” the submission said.
The Federal Chamber of Automotive Industries (FCAI) on the other hand has called for the LCT to be abolished entirely, labelling it an “obsolete tax”.
“The luxury car tax served a historic purpose, having originally been created as a means of protecting Australia’s local vehicle manufacturing industry,” it said.
“Given manufacturing in Australia ceased in 2017, the luxury car tax and its purpose has become redundant and should be scrapped.”
The FCAI said it is inefficient and inequitable to manipulate a tax that was formulated for a purpose that is now redundant so that it artificially addresses another issue.
“Consistent with its longstanding position, the FCAI recommends that the luxury car tax be abolished in a staged process over a five-year period to mitigate any unintended consequences,” it said.
In the event that the government does proceed with the changes for luxury car tax, the FCAI said there should be a transitional period where the maximum fuel consumption for vehicles defined as fuel efficient for the purposes of the LCT is gradually reduced over a three-year period.
The association said the All Groups CPI should be used as the method of indexation for both fuel-efficient and all other luxury vehicles.
The government must also implement transition arrangements to protect consumers who may purchase a vehicle subject to LCT prior to 1 July 2025 in instances where the vehicle is not supplied/imported prior to that date, it added.
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