The controversial Luxury Car Tax (LCT) has been in place in Australia since mid-2000, but its days may be numbered as Australia edges towards a new trade deal with the European Union.
Australian Minister for Trade and Tourism, Don Farrell, last week met with the European Commissioner for Trade and Economic Security, Maroš Šefčovič, and Commissioner for Agriculture and Food, Christophe Hansen, to discuss a Free Trade Agreement (FTA) between the regions, hailed as a success in a joint statement.
“The Ministerial level engagement was constructive and positive and allowed the two sides to converge positions on a range of issues,” the statement read.
“Good progress was achieved in narrowing gaps on a small number of outstanding matters. The principals will now report back to their Leaders.”
As reported by The Australian, Senator Farrell said the scrapping of the LCT - which has arguably disproportionately affected vehicles from Europe - was on the table to move a potential deal closer.
“What we are proposing to do is remove all tariffs on European goods coming into Australia,” said Senator Farrell.
“Obviously that significantly reduces the cost of those goods. The luxury car tax is on the table, and if we can reach an agreement that will of course be part of that agreement.”
The LCT places an additional cost of 33 cents for each dollar above a certain threshold, and was introduced at the start of the 2000/01 financial year, partially serving as a protector of Australia’s car industry.
Despite local manufacturing ending in October 2017, the LCT has remained, and currently applies to vehicles with a dutiable value $91,387 which consume less than 3.5L/100km (previously 7.0L/100km), or $80,567 for those above it.
This change to the fuel-efficient vehicle definition saw certain variants of the Mercedes-Benz C-Class and Vito Tourer, Alfa Romeo Stelvio, Lexus RX and NX hybrids, the Toyota Kluger hybrid, and Audi Q5 diesel fall into the more stringent LCT threshold.
Currently the LCT brings in about $1.2 billion in tax revenue annually.
Previously the Federal Chamber of Automotive Industries (FCAI) has called for the LCT to be removed.
“Australia’s automotive sector strongly encourages all participants to deliver a trade outcome that is future-focused rather than prolonging outdated and inefficient policy arrangements, and one that allows Australians to share in world-leading mobility, safety and environmental technologies at the lowest possible prices,” FCAI chief executive Tony Weber said in June 2025.
