Australia’s love affair with big cars is showing no signs of slowing down. From the outback to the inner city, utes, SUVs, and oversized trucks are everywhere—and it’s not just a matter of personal taste.
There’s a hidden incentive that’s fuelling this trend, and it’s costing taxpayers a staggering $250 million a year. But is it time for a rethink?
The luxury car tax loophole: Who really benefits?
Let’s start with the basics. The luxury car tax (LCT) is designed to make those splurging on high-end vehicles pay a little extra.
If you buy a car worth more than $80,576 (for the 2023-24 financial year), you’re hit with a 33% tax on the amount above that threshold.
Sounds fair, right? But here’s the kicker: most utes and SUVs are classified as ‘light commercial vehicles’ and are exempt from this tax, regardless of whether they’re used for work or just the school run.
Associate Professor Milad Haghani, an urban resilience expert at the University of Melbourne, says this loophole is a major reason why so many Australians are choosing to go big.
‘If you’re looking at cars in the $80,000-plus range, there’s a real incentive to buy a pick-up or large SUV. You dodge the luxury tax, and suddenly that massive ute looks like a bargain,’ he explains.
And let’s be honest—how many of these hulking vehicles are actually being used for hauling tools or towing trailers? The answer: not many. Most are simply ferrying families around suburbia.
A costly trend for all Australians
So, what’s the real cost of this loophole? According to The Australia Institute, it’s about $250 million a year in lost tax revenue.
But that’s just the tip of the iceberg. Bigger vehicles mean more congestion, more pollution, and more wear and tear on our roads.
Here’s a jaw-dropping fact: a large ute that’s twice the size of a small car can cause up to 16 times more road damage.
That’s thanks to the ‘fourth power law’ in pavement engineering—double the axle weight, and the impact on the road multiplies by 16. It’s no wonder our roads are riddled with potholes!
And who pays for all this extra damage? You guessed it—every Australian taxpayer, whether you drive a tiny hatchback or a monster truck.
From sedans to SUVs: How did we get here?
It wasn’t always this way. Less than 25 years ago, most new cars sold in Australia were small sedans and hatchbacks.
Fast forward to today, and they make up just 17% of new car sales. The rest? A whopping 80% are SUVs, utes, vans, or light trucks.
Why the shift? Partly, it’s clever marketing—car companies have convinced us that bigger is better, safer, and more practical.
But the tax loophole has played a huge role, making it financially attractive to go large.
Cities push back: Are our streets ready for mega-utes?
Not everyone is thrilled about the rise of the mega-ute. In Melbourne, the Yarra City Council has been exploring ways to discourage oversized vehicles, including higher parking fees for big cars—inspired by Paris, where large SUVs now pay up to $30 an hour to park in the city centre.
Greens Councillor Sophie Wade says our streets simply weren’t designed for these behemoths.
In fact, Standards Australia is even considering making car park spaces bigger to accommodate them.
Imagine the cost and disruption of retrofitting every shopping centre and public car park in the country!
Should registration fees reflect the true cost?
Currently, only NSW and WA factor in vehicle weight when setting registration fees. Queensland and Tasmania use engine cylinders as a rough proxy, while Victoria bases fees on where you live.
Prof Haghani argues that a fairer system would charge more for heavier, larger vehicles—and perhaps even take into account how much you drive.
‘Right now, the registration system just isn’t fair or equitable,’ he says. ‘We need a model that reflects the real impact of these vehicles on our roads and environment.’
The environmental toll: More than just money
Let’s not forget the environmental impact. Larger vehicles are generally less fuel-efficient, pumping out more carbon emissions and contributing to air pollution.
As Australia tries to meet its climate targets, encouraging the uptake of oversized, petrol-hungry vehicles seems like a step in the wrong direction.
What’s next? Is change on the horizon?
The federal government has hinted at new road charges for certain drivers, but so far, there’s been little appetite for closing the luxury car tax loophole.
With $250 million a year at stake—not to mention the hidden costs of congestion, pollution, and road repairs—many are calling for urgent reform.
What do you think?
What do you think about the current registration and tax systems? Should vehicle size and usage play a bigger role in what drivers pay?
Are you concerned about the rise of mega-utes and SUVs on our roads? Do you think the luxury car tax loophole should be closed? Or do you believe Australians should be free to drive whatever they like, tax-free?
We’d love to hear your thoughts and experiences—especially if you’ve noticed the impact of bigger vehicles in your neighbourhood. Share your views in the comments below.
Also read: New $1,600 fine hits drivers—are you ready for the road rule shake-up?
I have a 2009 SUV, and it is small compared to to-days SUVs.
A rubbish article. You only have to look at the huge number of caravans on the roads these days to realise why there are so many utes and SUV’s being sold. Not a great deal too many sold as a tax dodge. (Maybe by uni associates though).
It is not just the luxury car tax that is being avoided. Many ute owners are claiming income tax deductions for using their utes for work when most of the time they are doing the school run, towing a caravan or commuting to the office. The tax department doesn’t have the resources to check compliance. In my street of 28 houses there are 24 utes most of which are used for the daily commute.
The advertising on TV for these vehicles should be banned. Up hills through water at beach and in creeks / rivers. Creates expectations which are copied to road use. I would like a dollar for every time I have been squeezed off the road or bullied out of position in merging lanes. These are usually by large 4wd SUVs often and usually driven by females in what appears the 30 to 50 age range. Feminism gone mad??
I’m sick of entitled Ute drivers who think they own the road, and take up too much space in car parks. My car was damaged by a careless driver of a tray back Ute in a Bunnings car park.
There seem to be differences of opinion on the original rationale for the LCT. One was to get more money from the “top end of town” and the other was as a disincentive to buy what were mainly European luxury cars and head the buyer to the top models from the local manufacturers. I know that when it was introduced there were frantic “rejiggs” of many models to bring them just below the threshold and not be eligible for the LCT.
The politics of envy are rearing up here with people trying to say what they think other people should be allowed to drive. If a vehicle meets all of the appropriate ADRs governing registration in this country, really it is no-one else’s business about who buys and drives what.
If a person can afford the extra purchase cost and the running expenses, good for them. They are still paying the extra in GST, so not really escaping the tax man at all.
This is Australia, it is a very big country and there is room for all shapes and sizes and we should be able to enjoy what we can without anyone moralising against us.