Luxury Car Tax shake-up: fuel efficient vehicle threshold slashed to just 3.5L/100km!

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The Australian government is set to shake-up the Luxury Car Tax by tightening its ‘fuel efficient vehicle’ definition, slashing the fuel consumption threshold from 7.0L/100km to just 3.5L/100kms. 

It will also change the indexation rate for the LCT value threshold in changes set to take place from 1st July 2025.

The move appears intent on essentially wiping out internal combustion vehicles from avoiding LCT, leaving electric cars and some hybrids and PHEVs defined as ‘fuel efficient vehicles’.   

The Federal Chamber of Industries (FCAI) has been quick to respond to today’s announcement, calling out the federal government, pleading for the Luxury Car tax (LCT) to be abolished. 

FCAI’s chief executive officer Tony Weber said that the tax is unnecessary for new low emission technology vehicles. 

“The LCT penalises Australian consumers, as it imposes unnecessary additional taxes on many low emission technology vehicles,” Mr Weber said.

“The changes announced today in MYEFO slug Australians with more taxes and make vehicles less affordable. The change to indexation is just another cynical revenue grabbing exercise.

“Australians need real tax reform, rather than tinkering at the edges.”

The new rule is set to come into effect on 1st July 2025. 

What is the plan for the LCT in 2025?

Like before, there will be a LCT threshold for fuel efficient and ‘other vehicles’ in Australia. 

Currently, the threshold is $89,332 for fuel-efficient vehicles and $76,950 for ‘other vehicles’. 

However, the Government has announced it will drop the definition of fuel-efficient vehicle from a car with a maximum fuel consumption of 7.0L/100km to just 3.5L/100km, essentially wiping out many combustion luxury cars. 

The change is set to increase tax income by $155 million over five years from 2023.