Mikkel Christensen
Australia has agreed to soften one of its most debated car taxes as part of a long-awaited trade agreement with the European Union.
Australia has agreed to soften one of its most debated car taxes as part of a long-awaited trade agreement with the European Union.
The move stops short of removing the levy entirely, but signals a shift in policy.
The changes, reported by Drive, are expected to reshape pricing for some high-end electric vehicles while preserving a key source of government revenue.
A tax survives
The Luxury Car Tax in Australia, long criticised by automakers, will remain in place despite expectations it could be scrapped under the deal.
However, the federal government will lift the price threshold for electric vehicles subject to the tax from $91,387 to $120,000.
The levy, which applies at 33 per cent above the threshold, generates about $1.1 billion annually, making a full repeal unlikely.
Electric carve-out
Under the new arrangement, fewer electric vehicles in Australia will fall within the tax bracket. Estimates cited by Drive suggest the number of affected models will drop significantly.
For vehicles that still exceed the new threshold, the adjustment is expected to lower prices by roughly $8,500, depending on the model.
A new category for “zero-emissions vehicles” will be introduced, while existing thresholds for fuel-efficient and conventional cars will remain in place.
Trade deal pressure
The changes are part of a broader free-trade agreement between Australia and the European Union, signed by Prime Minister Anthony Albanese and European Commission President Ursula von der Leyen.
The deal will also remove a 5 per cent import tariff on European-built vehicles entering Australia.
Drive reports the tax had been used as leverage in negotiations, particularly to secure improved access for Australian agricultural exports to Europe.
Wider implications
The higher threshold could benefit new electric models entering the Australian market, especially those previously priced close to the tax limit.
Uncertainty remains around related incentives, including tax exemptions linked to salary-packaged vehicle purchases.
Introduced in 1999, the Luxury Car Tax in Australia has increasingly applied to higher-spec family vehicles, rather than only traditional luxury brands.
Sources: Drive, government statements
