Free trade agreement (FTA) talks between Australia and the European Union could soon bear fruit, and one of the results could be the abolition of the controversial luxury car tax (LCT).
“The engagement at ministerial level was constructive and positive and allowed both sides to align their positions on a range of issues,” said a joint statement released on Friday (February 13) by Federal Minister for Trade and Tourism Don Farrell, as well as EU Commissioner for Trade and Economic Security Maroš Šefčovič and Commissioner for Agriculture and Food Christophe Hansen following talks in Belgium.
“Good progress has been made in reducing gaps in a small number of outstanding matters. School leaders will now report to their leaders.”
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The ABC Sources also said that “the deal is now complete”, with only one outstanding issue – reportedly related to meat exports – remaining to be resolved before a deal can be signed.
It is understood the EU wants Australia to scrap its LCTs, while Australia is calling for better access to the European market for its agricultural exports.
The latter was a sticking point when previous negotiations between Australia and the EU over a free trade agreement in 2023 failed.
Australia and the EU trade more than $100 billion worth of goods and services every year, making the bloc Australia’s third-largest trading partner.
In the absence of a free trade agreement between Australia and the EU, European vehicles are also subject to an import tariff of five percent.
This is in contrast to the four main sources of new car imports into Australia – Japan, China, Thailand and South Korea – which do not impose import duties on vehicles.
Accordingly The AustralianAround 40 percent of LCT sales come from the sale of European cars.
Despite the name, the LCT also applies to Australian classics such as the Toyota LandCruiser 300 Series as well as the Prado and Nissan Patrol.
The LCT is expected to cost Australian new car buyers $1.21 billion in the 2025/26 financial year.
It increases any portion of the vehicle’s price above the LCT threshold by 33 percent, which is currently $91,387 for fuel efficient (i.e. vehicles with fuel consumption of less than 7.0 L/100 km) and electric vehicles (EVs) and $80,567 for all other vehicles.
The thresholds are set annually by the government and adjusted to the Consumer Price Index (CPI).
As of July 1, 2025, the definition of a fuel efficient vehicle changed to a vehicle with a fuel consumption of less than 3.5 L/100 km following the passage of the Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025, a move intended to spur the adoption of more environmentally friendly vehicles.
The Australian Back in May 2025, it was reported that the federal government was considering a gradual reduction in the LCT rather than scrapping it all at once, after car dealers and car manufacturers warned that its sudden removal could trigger a rapid collapse in vehicle resale values.
The Australian Automotive Dealer Association (AADA), the peak body for car dealers in Australia, again called for the abolition of the tax or at least reforms, including a higher threshold and exemption for low-emission vehicles, in its interim budget last year.
