Luxury Car Tax in Australia (2026): What it means for car buyers

If you’re planning to buy a new car in Australia in 2026, especially a premium SUV, European model, or electric vehicle, you’ve probably come across the Luxury Car Tax (LCT).

With new trade agreements and policy updates on the horizon, the LCT is evolving fast. Here’s a clear, updated breakdown of what it is, how it works, and what it means for Aussie drivers this year.

What Is the Luxury Car Tax?

The Luxury Car Tax (LCT) is a federal tax on vehicles priced above a set threshold: 33% on the value above the threshold.

• Applied to both imported and locally sold vehicles
• Usually already included in the drive-away price

You can read a full breakdown from NRMA here.

Why Does the LCT Still Exist?

The LCT was introduced in 2000 to protect Australia’s domestic car manufacturing industry. However, with local manufacturing largely gone, many experts and industry leaders now see it as outdated. The tax unfairly impacts everyday buyers, particularly those purchasing larger family SUVs or safer, higher-spec vehicles.

What’s changing in 2026?

1. Expect higher LCT Thresholds

A major update from the Australia–EU Free Trade Agreement involves higher thresholds. Reports indicate the government may raise them significantly.

Reports suggest the threshold could increase to $100,000 or more, meaning many mid-range luxury cars that were previously taxed may soon fall below the threshold.

You can view the most updated LCT threshold on the Australian Taxation Office’s website.

2. Electric Vehicles (EV) could receive better benefits

To reach zero carbon emissions by 2050, Australia is prioritising EV adoption. LCT reforms are expected to promote this shift.

Some proposals suggest:

• Raising the fuel-efficient vehicle threshold to $120,000
• Making premium EVs more accessible without heavy tax penalties

Considering switching to electric could mean thousands in savings.

3. European cars may get cheaper

Tariffs on European cars are being removed under the EU trade deal, scrapping the 5% import charge.

With LCT changes, brands like BMW, Mercedes-Benz, Audi, and Volkswagen may see notable price drops in Australia.

The LCT isn’t going away (yet)

Despite all these changes, the LCT is expected to remain for now.

It generates significant revenue for the government—over $1 billion annually. Instead of being scrapped, it’s more likely to be adjusted or modernised. But you may be wondering…

Which cars are actually affected?

A common misconception is that LCT only applies to ultra-luxury cars, but that’s not true; it can apply to a range of vehicles:

• European vehicles (BMW, Audi, Mercedes-Benz)
• High-spec SUVs like the Land Cruiser or Patrol
• Premium hybrids and EVs
• Even some family vehicles with added features

This is why many Australian families pay LCT without buying what they’d call a “luxury” car.

What this means for Aussie buyers in 2026

If you’re buying a car now, you’ll likely pay LCT under current thresholds. Immediate relief is limited unless the price change has already been applied.

On the other hand, if you’re holding off, you could benefit from higher thresholds. EVs and European cars can also be more affordable options.

The Luxury Car Tax has been part of Australia’s car market for over two decades, but 2026 could mark a turning point.

The cost of owning a premium vehicle in Australia may finally become more accessible. Timing still matters. If you’re in the market for a new car, keeping an eye on these updates could make a significant difference to your budget.