The Australian automotive sector is facing a potential shake-up as the Albanese government signals its willingness to abolish the Luxury Car Tax (LCT) in a bid to secure critical free trade agreements (FTAs) with the European Union and India. This move comes amid escalating global trade tensions, including new tariffs from the United States under President Trump’s renewed leadership.
The LCT, which adds 33% to the price of vehicles over $80,567 (or $91,387 for fuel-efficient models), has long been a sticking point in FTA negotiations, particularly with the EU. European officials see the tax as discriminatory, especially against luxury car brands, and have consistently pushed for its removal as a condition of any trade deal. The Albanese government now appears open to that demand, especially in exchange for greater access to Europe’s agricultural markets.
In addition, from July 1, 2025, the threshold for what qualifies as a “fuel-efficient” vehicle will tighten from 7.0L to 3.5L per 100 km, potentially subjecting more vehicles to the LCT unless it is scrapped altogether.
While removing the LCT would benefit many importers and premium dealers, it presents fiscal challenges. The tax currently generates over $1.2 billion in annual revenue, not to mention state-level levies in regions like Victoria and Queensland, which could also come under international scrutiny.
Several Australian states impose additional levies or higher stamp duty rates on luxury vehicles, supplementing the federal Luxury Car Tax (LCT). Victoria has the most aggressive luxury vehicle surcharge, with stamp duty increasing significantly for more expensive vehicles. For passenger vehicles priced between $69,153 and $100,000, the rate is 5%; for those between $100,001 and $150,000, it climbs to 7%; and for vehicles over $150,000, it reaches 9%. Green vehicles under $100,000 benefit from a reduced rate of 2%.
In Queensland, luxury vehicles (priced above $100,000) attract higher vehicle registration duties. The rate increases depending on engine type, with vehicles in this category taxed at up to $6 per $100 of dutiable value, especially for higher-cylinder models like V8s. South Australia also applies a surcharge for vehicles exceeding $100,000, charging $6 per $100 for the portion above that threshold.
Western Australia uses a sliding scale for stamp duty based on vehicle value. While it does not label any portion as a luxury car tax, vehicles priced above $50,000 are taxed at a top rate of 6.5%. By contrast, New South Wales, Tasmania, the ACT, and the Northern Territory do not impose specific luxury vehicle surcharges, though their standard stamp duty systems still increase with the value of the vehicle.
These state-based levies mean that buyers of high-end vehicles can face a substantial cumulative tax burden, depending on where they purchase and register the vehicle.
Parallel to the LCT conversation is the federal government’s increasing focus on road use reform. Treasurer Jim Chalmers is actively developing a national road user charge for electric vehicles (EVs), aimed at offsetting the decline in fuel excise revenues as EV uptake grows. The High Court’s 2023 decision striking down state-level EV charges, like Victoria’s, reinforced that only the federal government can enact such measures.
The proposed charge would likely be distance-based and is being developed in consultation with states and territories. However, the government has confirmed that no such measure will take effect before the next federal election. The aim is to balance infrastructure funding needs with support for low-emission vehicles and maintain momentum toward Australia’s decarbonisation goals.
Internationally, Australia is accelerating trade talks with the EU and India, buoyed by renewed urgency from both partners to reach agreements. The EU wants faster access to Australian agricultural goods, while India seeks guarantees around critical mineral exports, something the Albanese government is leveraging in parallel negotiations.
Despite diplomatic optimism, the path forward remains complex. President Trump’s latest tariff salvos, including a 100% levy on foreign-produced films, underscore the volatile global environment. Meanwhile, Australia must navigate its domestic tax reform challenges without compromising critical industry and environmental objectives.
For dealerships, these proposed reforms and trade dynamics could bring about significant changes in vehicle pricing, consumer behavior, and inventory strategy. Auto businesses are encouraged to monitor developments closely, engage with industry bodies, and prepare for a potential shift in tax and compliance structures affecting both ICE and electric models.