Europe free trade agreement fails to kill off Luxury Car Tax as $120,000 EVs given a boost

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The Luxury Car Tax has survived a newly signed Australia-Europe free trade agreement, which will instead raise the threshold for “zero emission” cars costing up to $120,000.

Europe was widely reported to have been pushing for the LCT’s axe as part of the trade deal, which applies a 33 per cent tax above certain price thresholds.

Luxury electric vehicles from Europe will instead benefit, while the dropping of a five percent import tariff on European cars should lead to slightly cheaper vehicles in showrooms.

“Fuel efficient” cars with official fuel consumption no higher than 3.5 litres per 100km continue with a price threshold of $91,387, with other vehicles given a threshold of $80,567. LCT is applied to the portion above the thresholds rather than the total value of the vehicle.

Industry body the Federal Chamber of Automotive Industries said it had mixed feelings about the outcome of the Europe free trade agreement.

“The removal of the tariff is a positive outcome for Australian consumers and brings European vehicles in line with those imported from other major markets such as China, Japan, Korea and Thailand,” said FCAI chief executive Tony Weber.

“The change to the Luxury Car Tax is incremental and leaves in place an outdated measure that no longer reflects the structure of the Australian automotive market.

“Luxury car taxes were first introduced in Australia nearly 40 years ago to protect a domestic manufacturing industry which no longer exists. It serves no clear purpose other than raising revenue and continues to impose unnecessary costs on consumers.”

The FTA will be good news for German premium car makers such as Audi, BMW, Mercedes-Benz and Porsche, who have struggled to sell its higher-end electric vehicles in meaningful numbers.

Consumers have been reluctant to buy EVs above the outgoing $91,387 as this also affects Fringe Benefits Tax (FBT) exemptions.

The timing looks good for notable upcoming models such as the rivalling BMW iX3 and Mercedes GLC Electric luxury midsized SUVs.

A $109,900 RRP has been confirmed for the iX3 for its mid-year launch, with the GLC expected to start from a similar price point before on-road costs.