Price increases coming for many new cars due to LCT revamp

The tax benefits for buyers of some electrified and economical vehicles will be reduced from the 2025-26 financial year, when the federal government alters its criteria for what constitutes a ‘fuel-efficient vehicle’.

Federal treasurer Jim Chalmers today announced that as of July 1, 2025, a vehicle will need to have an advertised combined fuel consumption figure of less than 3.5L/100km – up from the current benchmark of 7.0L/100km – to be classed as fuel-efficient and therefore subject to a higher luxury car tax (LCT) threshold.

As a result, dozens of models currently exempt from LCT will be hit with significant price increases in 18 months when they’re no longer deemed fuel-efficient, with just some of the high-profile victims set to include the popular Toyota Kluger Hybrid, Kia Sorento Plug-in Hybrid, Mazda CX-90 diesel and Lexus NX hybrids.

At the moment, LCT applies a 33-cent tariff to every dollar of a vehicle’s transaction price over a certain threshold – currently $76,950 for non-fuel-efficient vehicles and $89,332 for fuel-efficient vehicles (those that consume less than 7.0L/100km).

The government says the move, which will reportedly net it a projected revenue increase of close to $155 million per annum, will encourage the uptake of more genuinely fuel-efficient vehicles – primarily plug-in hybrids and EVs.

Unsurprisingly, industry experts have slammed the decision, with Federal Chamber of Automotive Industries (FCAI) chief Tony Weber declaring it counterintuitive and again calling for the LCT to be abolished altogether.

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

“If the Australian government wants to modernise the LCT, they should remove it as part of true tax reform for the transport sector including consideration of a road user charge.”

Australian Automotive Dealer Association (AADA) CEO James Voortman echoed these sentiments and also declared the LCT redundant given the reasons behind its initial establishment.

“These changes to the luxury car tax (LCT) have made a bad tax even worse,” he said.

“The LCT is an outdated tax meant for a time when Australia still manufactured cars – it should have been abolished years ago, but now it’s being used to further tax fuel-efficient cars.

“The Australian government should be encouraging the uptake of fuel-efficient vehicles, not increasing the tax on them.

“The best way the government can use the LCT to achieve a 43 per cent reduction in greenhouse gas emissions by 2030 is by abolishing the tax altogether.”