Australia is set to roll out notable changes to the Luxury Car Tax (LCT) starting 1 July 2025. These updates are aimed at promoting environmentally friendly vehicle choices while simplifying the way LCT thresholds are adjusted annually. Here’s a breakdown of what’s changing and what it means for car buyers and business owners.
Key Updates to the Luxury Car Tax Rules
1. Revised Definition of Fuel-Efficient Vehicles
From 1 July 2025, the criteria for a vehicle to qualify as fuel-efficient will tighten significantly. The current benchmark of 7.0 litres per 100 km will be halved to 3.5 litres per 100 km. This change effectively excludes most hybrid and traditional petrol or diesel vehicles from the fuel-efficient classification, limiting the higher LCT threshold mainly to electric vehicles (EVs) and select plug-in hybrids.
2. Standardised CPI Indexation
Currently, LCT thresholds for fuel-efficient vehicles and other vehicles are indexed using different Consumer Price Index (CPI) measures. Beginning in the 2025–26 financial year, both thresholds will be adjusted using the same CPI measure—the motor vehicle purchase sub-group. This move ensures a uniform and transparent method of updating the LCT thresholds.
3. LCT Thresholds for 2025–26
For the 2025–26 financial year, the thresholds will remain unchanged due to a slight reduction in the relevant CPI factor:
- Fuel-Efficient Vehicles: $91,387
- Other Vehicles: $80,567
These limits are based on the GST-inclusive value of the vehicle, including optional accessories and modifications.
What This Means for You
Potential Increase in Vehicle Costs
Vehicles that previously benefited from the higher fuel-efficient threshold but do not meet the new 3.5 L/100 km requirement may now attract the standard LCT, leading to higher purchase prices.
More Incentives for Electric Vehicle Purchases
The tighter criteria serve as an incentive to transition to low or zero-emission vehicles. Buyers opting for EVs or select plug-in hybrids can continue to benefit from the higher LCT threshold.
Strategic Vehicle Planning Required
With these tax changes on the horizon, individuals and businesses should reassess vehicle purchase plans. Understanding the financial impact of LCT under the new rules could help avoid unexpected costs and maximise tax efficiency.
Long-Term Outlook: Is LCT Here to Stay?
There has been growing discussion around the relevance of the LCT in today’s automotive market. Originally introduced to support local car manufacturing—which has since ceased—the tax may be reconsidered in the future. Policymakers are also exploring alternatives such as road user charges to offset falling fuel excise revenues amid increasing EV adoption.
How Pace Advisory Group Can Help
Understanding vehicle-related tax changes is crucial for making informed purchase decisions. At Pace Advisory Group, we stay ahead of tax reforms to help our clients plan effectively. Whether you’re purchasing a new luxury vehicle or managing a company fleet, we can advise on:
- LCT liability
- GST implications
- Vehicle financing structure
- Fleet cost optimisation
Get in touch with our team for tailored advice on how the new LCT rules may affect you or your business.
Stay informed. Stay compliant. Let Pace Advisory Group guide your vehicle and tax decisions with confidence.