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The government has released draft legislation to update the luxury car tax (LCT) after previously announcing it would tighten the definition of a fuel-efficient vehicle and align the indexation rate for LCT thresholds.

The changes will be in effect from 1 July 2025, the government said.

There are currently two thresholds for the LCT which include a higher threshold that applies to fuel-efficient vehicles and a lower threshold that applies to all other luxury vehicles.

The new amendment will update the definition of a fuel-efficient car by reducing the maximum fuel consumption for a car to be considered fuel-efficient for the LCT to 3.5 litres per 100 kilometres from the current seven litres per 100 kilometres.

The aim behind tightening the definition of a fuel-efficient vehicle is to ensure only electric, or partially electric vehicles can use the higher threshold of the LCT.

The government said this amendment will “incentivise” the uptake of electric or partially electric vehicles.

The LCT amendment will also see a change in the index number used to index the LCT threshold from all groups CPI to the motor vehicle purchase sub-group of the CPI.

The higher threshold that applies to fuel-efficient luxury cars is known as the fuel-efficient car limit and is indexed annually using the index number for the motor vehicle purchase sub-group of the CPI.

The lower threshold that applies to all other luxury cars is indexed annually using the index number of the all groups CPI.

The government said it is seeking to change this as the indexation rates haven’t grown at the same pace and have instead converged.

“At the time of its introduction in 2008, the fuel-efficient limit was set at $75,000, whilst the LCT threshold for all-other luxury cars was $57,180,” the government said.

“Since then, there has been weaker growth in the motor vehicles sub-group of CPI compared to all groups CPI which has caused the differential between these two thresholds to narrow.”

“For the 2024-25 financial year, the fuel-efficient cars threshold sits at $91,387, whilst the threshold for all-other luxury cars is at $80,567.”

The government said this amendment will aim to align these indexation rates to ensure that LCT thresholds grow at the same pace, ensuring the concessional LCT treatment for fuel-efficient vehicles is maintained.

By encouraging the uptake of fuel-efficient vehicles, various Australian government strategies will also be supported, including the National Electric Vehicle Strategy, the commitment to reduce greenhouse gas emissions by 43 per cent by 2030, and the commitment to achieve net zero emissions by 2050.

Imogen Wilson
24 September 2024
accountantsdaily.com.au