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As reports swirl that it's on the chopping block, the controversial Luxury Car Tax will slug thousands of hybrid car customers with higher levies – but offer no reprieve to anyone else.
The standard Luxury Car Tax new-car price threshold has failed to increase year-on-year for the first time in 14 years, after car buyers have been handed up to $16,000 in buffer from the much-maligned tariff since the COVID-19 pandemic.
But dozens of models – from the Toyota Kluger to the Audi Q5 – are set to face price rises on July 1, as the definition of a "fuel-efficient vehicle" is changed to cut out many popular and still-frugal hybrid and diesel vehicles.
It comes amid reports Luxury Car Tax (LCT) could be phased out as part of free-trade deal talks between Australia and Europe, where many prestige cars sold here are manufactured.
Calls for the LCT's axing have grown louder since Australian car manufacturing – which it was introduced in 1999 to protect – ended, and the tax has begun covering ordinary family SUVs from the likes of Toyota.
For the 2025-26 financial year commencing July 1, there will be no change to the LCT new-car price thresholds from the 2024-25 financial year, set at $91,387 for "fuel-efficient vehicles" and $80,567 for all other vehicles.
LCT is charged at a rate of 33 per cent for every dollar above these thresholds, the vehicle's value inclusive of manufacturer options and dealer delivery charges, but before stamp duty and registration.
What is set to change is the definition of a "fuel-efficient vehicle", which will drop from a car with claimed fuel consumption of 7.0 litres per 100 kilometres or less, to 3.5L/100km or less.
It means a number of hybrid and diesel cars which claim to consume between 3.6 and 7.0L/100km will now fall under the lower threshold, and either pay LCT for the first time, or more of it.
They will incur up to $3246 in extra tax, before any additional LCT paid on optional extras or dealer delivery charges – if a car was previously under the threshold but is now over it – is counted.
The change in the fuel consumption threshold has been estimated to hand the government an extra $155 million in tax revenue, according to figures released at its announcement 18 months ago.
Updated figures released by the Federal Government show it expects to collect $1.21 billion in tax revenue from LCT over the 2025-26 financial year, up from $1.17 billion for 2024-25.
It is nearly double the $688 million that LCT raked in during the 2018-19 financial year.
Annual changes in the Luxury Car Tax are based on an 'indexation factor' linked to the Consumer Price Index (CPI), a measure of inflation relative to different types of goods.
When the indexation factor is less than 1, the ATO does not change the thresholds – and given inflation has eased in recent months, that has proven to be the case for the new financial year (0.997).
It is the first time the threshold did not change for fuel-efficient vehicles since the 2019-20 financial year – prior to the pandemic – and, for all other vehicles, since 2011-12.
But the thresholds have risen considerably in recent years – mirroring high inflation – up $15,861 for fuel-efficient vehicles, and $13,042 for other types, since the end of June 2020.
In future years, the two thresholds will grow at the same rate, as the indexation factor has been aligned – rather than operating separate figures for each type of vehicle.
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
