Modernising the luxury car tax for fuel-efficient vehicles

The government is consulting on draft legislation to modernise the Luxury Car Tax (LCT).

In the 2023–24 Mid‑Year Economic and Fiscal Outlook, the government announced that from 1 July 2025 it would:

• tighten the definition of a fuel‑efficient vehicle
• 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
• commitment to reduce greenhouse gas emissions by 43 per cent by 2030
• commitment to achieve net zero emissions by 2050.

Tighten the definition of a fuel‑efficient vehicle

There are 2 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.

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.

Align the indexation rate for LCT thresholds

The other vehicles threshold is indexed by the ordinary Consumer Price Index (CPI). This will change to the motor vehicle purchase sub‑group of the CPI.

This means the same indexation rate will apply to both thresholds.