BMW calls for Australia's "outdated" Luxury Car Tax to be scrapped

BMW Australia wants the federal government to scrap the Luxury Car Tax (LCT), labelling it "outdated" and calling for a "level playing field" as the latest changes come into effect from today, July 1, 2026.

Speaking at an event for the new BMW X5 SUV – due in Australian showrooms later this year – BMW Australia head of product and market planning, Brendan Michel, said the LCT adds unnecessarily to consumer costs.

"It was brought in to protect local manufacturing, that no longer exists – it's an outdated tax," Mr Michel told CarExpert.

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"If you look at the X3 [mid-size SUV] segment, which starts [from $87,300 before on-road costs] just below the LCT threshold - there is no LCT on those models. A car like an X5 is positioned [even] higher [in price] than the segment below it, because it has LCT added on over and above."

The LCT was estimated to cost Australian new-car buyers $1.21 billion in the outgoing 2025-26 financial year (July 1, 2025, to June 30, 2026), with other brands such as Polestar also calling for it to be abolished.

According to the Australian Financial Review, the LCT was expected to be scrapped as part of negotiations over a Free Trade Agreement (FTA) between Australia and the European Union earlier this year.

However, when the FTA was announced in March 2026, the LCT remained. However, there have been some changes.

The LCT rate remains 33 per cent, applied to the portion of a vehicle's GST-inclusive price above the threshold. From today, July 1, the threshold for most vehicles increases from $80,567 to $80,809.

As part of the new financial year changes, the threshold for fuel-efficient vehicles also rises from $91,387 to $91,661. The definition of a fuel-efficient vehicle, however, remains one consuming 3.5L/100km or less. This change was made from July 1, 2025, and is a reduction from the previous 7.0L/100km benchmark.

Significantly, the threshold for fuel-efficient electric vehicles will increase to $120,000 from July 1, 2027, exempting more EVs from the tax.

It comes as the Electric Car Discount is gradually wound back from March 2027. The incentive allows EVs purchased through a novated lease to be exempt from Fringe Benefits Tax (FBT), further reducing ownership costs.

BMW Australia demonstrated careful planning around the LCT threshold when it launched the entry-level i4 eDrive35 electric sedan at $85,900 before on-road costs in 2023. It became BMW's best-selling EV and outsold the entire Mercedes-Benz C-Class range the following year.

The potential removal of the LCT could deliver even greater savings for consumers and potentially alter local model lineups.

However, BMW said the tax had no bearing on which versions of the new X5 it chose to offer in Australia.

"It hasn't affected our original planning with the models we're going to bring in, or we currently have with the current X5," Mr Michel said.

"We've got petrol, we've got diesel, we've got plug-in hybrid. Now with this new generation, it brings in fully electric as well for the very first time on X5.

"We planned that two or three years in advance, anyway, [as part of] our normal product planning that we do behind the scenes, so recent changes to LCT, or changes that may come, have not affected our planning."

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