The End Of Luxury Car Tax? What An LCT Repeal Could Mean For Car Investors.
Written by Lex Pedersen, CEO of CHROME TEMPLE
As we emerge the other side of a federal election, I am reminded of an age-old adage that goes, “you get the government you deserve.”
A flurry of policy action has been overshadowed to us as we narrow in on an old policy of conjecture, luxury car tax (LCT). A tax developed in 2000 to protect the Australian domestic manufacturing industry – an industry that has been lost to our shores for the best part of a decade – yet the tax remains as removing the $1b+ revenue reliance was not of appeal. (LCT is a 33% tax applied in Australia on the sale or importation of cars above a certain value threshold. For 2024-2025, the threshold is $80,567 or $91,387 for fuel efficient cars).
Enter shifting global trade dynamics, geopolitical tensions, Hollywood-worthy tariff wars and the rapid pace of technological advancement—factors that have introduced widespread uncertainty and sparked renewed debate on the future of economic policies. The LCT papers have had the dust blown off them and a tug of war between a primary producing powerhouse (AUS) and the luxury automobile nucleus of the world (EU) ensues.
Ignoring the why and when’s (and pros and cons) of this potential abolition, as the portfolio manager of a dedicated car investment fund, I’m obliged to consider how this could potentially impact the industry, the investment fund I manage, our community and of course, any investment thesis. I also have to ask myself, if this comes to fruition, where is the risk and where is the opportunity.
I have always seen the greatest opportunity for returns potential as global, and in focusing on the 1% of the 1% of automotive artworks. As currencies and economic health shift, the landscape tilts and the chessboard shuffles. With trade wars thrown into the mix, pieces start falling over and decades long trends of value trajectory and transcontinental movements of these assets shifts from being largely predictable to a darker art. As with anything, there’s always risk and any predictions are a bit of an artform – but allow me still to put on the cape and dim the lights, as this is happening beneath our feet, now.
Who Will Be Impacted?
Removing or reducing the LCT will, of course, have the biggest impact on our domicile, Australia. Will it impact the global market? Yes, but likely with ripples and not tsunamis. Looking to our own nest and opportunity, this tax repeal (whether it happens or not) could shift the tempo of car asset values. The uncertainty has the potential to slow the collectible and luxury market, if not grind it to a halt on the speculation alone. Should LCT meet its demise, I believe that on balance the global collectible car market will geographically shrink, and the playing field will tilt in the favour of Australians.
How Will This Impact Values?
For those that have paid LCT for imported cars of distinction, you may be wondering: “have you over-paid” or was your decision more akin to being the top bidder at a waterfront home auction where many snigger at you for “over paying” only to look back some time in the near future with the sentiment that you “nicked it”? If values were static, this would be of more concern. But, in many instances for cars of distinction, the underlying asset uplift has outpaced the premium paid for LCT. Ultimately, a vehicle’s future value is driven by scarcity and demand, not tax structure. Meaning, that’s not really the question to ask. The question to ask is if you are about to buy an international asset of high value, should you wait and if you do, will the ongoing uplift be greater than any potential tax saving? The answer to that question, I’m afraid, comes down to specifics (what car, what condition, what spec, what price, how long do you plan to hold, what will demand be in the future, etc).
Why It Matters?
Outside of this, removing LCT means more variety and opportunity for the Australian collector market. Currently, LCT acts as a barrier to importing high-value luxury and collectible vehicles into Australia. Removing LCT opens up the possibility for arbitrage opportunities—importing high-value vehicles that appreciate faster overseas or are undervalued in other markets. Models that are historically strong in Europe or North America but less represented in Australia would become viable investments. When (if) LCT is no longer a consideration, exit strategies for high-value imports improve. Cars can be sold domestically without the LCT stigma attached or re-exported with less concern for sunk costs associated with the tax.
A Global Opportunity
Through the dust of what will no doubt be a period of uncertainty and potential inactivity, I see so much opportunity for cars as investments. COVID-19 and the next automotive revolution (EV's) sped up the realisation that these assets are a truly validated asset class, this tax shift opens up the world to us, quite literally.
I say, bring on the global market equalisation!
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Blog Article Disclaimers
Anyone thinking about making a vehicle investment should carefully review their options and seek professional advice prior to making any investment decision or vehicle purchase. No reliance may be placed on this article for any purpose. Information in this article has been prepared without taking into account the objectives, circumstances, financial situation or needs of any person, and may differ to information obtained elsewhere.
This article may also contain statements regarding our intent, belief or current expectations with respect to market conditions. Past performance and/or forward-looking statements are not a reliable indicator of future performance. The projections provided are based on the author’s assumptions and analysis. These projections are forward-looking statements and are not guarantees of future performance. The actual results may differ significantly from the projections due to various risks and uncertainties, including but not limited to market conditions, economic factors, and changes in regulatory environments.
This article reflects the author's opinions on a particular subject matter. The views expressed do not necessarily reflect the performance of the CHROME TEMPLE Investments Mach 1 Fund (the “Fund”) nor reflect the opinions of the Fund’s Trustee (Specialised Investment and Lending Corporation Ltd) or their affiliates.