The AADA notes the announcement today of a Free Trade Agreement (FTA) between Australia and the European Union (EU), which includes changes impacting the automotive sector.
The FTA includes two key measures relevant for franchised new car dealers;
- Introduction of a new Luxury Car Tax (LCT) category for zero emissions vehicles (ZEV), with a threshold of $120,000 (indexed annually).
- Removal of the 5 per cent Passenger Vehicle Tariff (PVT) for vehicles imported from the EU.
The ZEV LCT measure will require legislation and is expected to take effect from 1 July 2027, while the removal of the passenger vehicle tariff will occur following ratification of the agreement, which may take up to 24 months.
The AADA welcomes the removal of the PVT, which is expected to impact approximately 8 per cent of the new vehicle market. However, it is disappointing that the changes to the LCT fall short of the broader reform that the AADA has continued to advocate for.
The LCT change appears limited in scope, meaning the immediate impact on the market is likely to be modest. While increasing the LCT threshold for ZEVs provides a narrow benefit, it does not address the structural issues with the tax as a distortionary measure and a relic of an era when Australia manufactured vehicles.
The AADA considers that this is a missed opportunity to implement a more comprehensive approach to reforming this tax through complete removal or ensuring it only captures vehicles that would reasonably be considered ‘luxury’, including vehicles commonly used by small businesses and consumers in regional areas such as the LandCruiser.
The AADA will continue to engage with government and advocate for broader LCT reform, including targeting the tax to genuinely luxury vehicles, removing its application to accessories, and ensuring a smooth and orderly transition for implementing any changes.
The AADA will provide further updates as more detail becomes available.