Australia cuts import tariff on European cars but Luxury Car Tax stays

Australia has signed a Free Trade Agreement with the European Union, bringing two changes that will affect new car prices - a scrapped import tariff and a revised Luxury Car Tax threshold for electric vehicles.

The 5 per cent import tariff on all European-made cars will be removed, making models from brands including BMW, Mercedes-Benz, Volkswagen and Peugeot cheaper to import. The change brings European vehicles in line with cars imported from China, Japan, Korea and Thailand, which already enter Australia without that tariff.

For electric vehicles, the government has created a new LCT category with a threshold of $120,000, up from the current $91,387 that applies to fuel-efficient vehicles. The change is estimated to cut the number of EVs hit by the tax from 97 models down to 61, and reduce prices on affected vehicles by up to $8,500.

The existing thresholds remain unchanged for all other vehicles - $80,567 for standard cars and $91,387 for fuel-efficient models.

The Federal Chamber of Automotive Industries welcomed the tariff removal but was blunt on the LCT outcome. Chief executive Tony Weber called the tax "an outdated measure that no longer reflects the structure of the Australian automotive market," noting it was introduced nearly 40 years ago to protect a domestic car manufacturing industry that no longer exists.

The exact timing of both changes has not been confirmed. The agreement must clear formal ratification processes in both Australia and Europe before taking effect.

For buyers, the tariff removal is the more immediate win - cheaper European cars across the board, regardless of price or powertrain. The LCT relief is narrower, but for anyone eyeing a prestige EV priced just above $120,000, it could be the difference that brings it within reach.