Tax perks driving surge in number of SUVs and larger vehicles on Australian roads

Calls to tackle rise in SUVs, utes and 4WDs by reducing tax incentives and building narrow lanes and parking spots exclusively for small cars

The surge in popularity of larger vehicles in Australia has been driven by tax perks that incentivise buying SUVs, utes and other 4WDs instead of less-polluting smaller-sized cars and sedans, transport experts argue.

SUVs accounted for more than 50% of new vehicles sold in Australia last year, a share which has almost doubled over the past decade. The uptick has prompted calls to tackle the trend by limiting tax incentives, building bus lane-style narrow lanes and more parking spots exclusively for small cars.


The transport and cities director at the Grattan Institute, Marion Terrill, said tax rules for businesses and employees were subsidising the costs of buying a car and many saw this as an opportunity to upgrade.

“When you subsidise the purchase, people probably take some of that benefit as a cash saving, but we also see people who see it as a way to get a more expensive vehicle and, often, more expensive means larger.”

Terrill points to two tax incentives that she believes are behind the surge in sales of larger vehicles: the instant asset write-off for businesses, and the car concession in the fringe benefits tax.

For businesses, including tradies and sole traders, the instant asset write-off scheme allows for the cost of a vehicle to be deducted from a business’s taxable income in the current financial year, as opposed to having to depreciate it over several years.

For vehicles that can carry less than one tonne or seat less than nine people, the instant asset write-off limit is smaller – capped at $64,741 in the 2022-23 financial year.

However, a $150,000 threshold applies for vehicles that can carry more than one tonne or seat nine or more people, regardless of whether such a high payload carrying capacity is required by the business.

Terrill also identifies fringe benefits tax – designed to tax nonmonetary forms of income – and the rise of salary sacrificing programs for employees that tax cars at a concessional rate.

She said by making cars cheaper through such programs, Australians could buy more expensive cars with their salaries and were jumping at the chance to upgrade.

Additionally, heavy vehicles such as utes, vans and 4WDs, which can carry more than one tonne, are exempt from fringe benefits tax.


Terrill also noted that electric vehicles are exempt from fringe benefits tax, which came into effect last July. While acknowledging electric vehicles should be encouraged from an emissions reduction perspective, Terrill pointed out the vehicles still contribute to accidents and congestion, and believes there is no shortage of demand.

She has called on the Albanese government to introduce an emissions ceiling for vehicles instead.

More broadly, Terrill said the government should remove tax rules that incentivise purchasing larger cars over smaller cars.

“Big cars have all sorts of negative implications for the community,” she said. “They need more fuel to power them, so there’s more emissions and more exhaust pipe pollution which is toxic. They’re also more congesting and take up more space on roads.”

Greater SUV uptake reduced road safety for other users, she said. “People will say they feel safe when riding up in one, that they can see more, but everyone else in a small vehicle is less safe. And it’s much less safe for pedestrians when there are a lot of large SUVs.”

Terrill said Australia’s road design had made upgrading to SUVs easy. Australia’s standard parking spots were based on allowing a 1979 Ford Falcon to comfortably park – a model which Terrill described as a roomy car. This had allowed larger vehicles to park with ease.

“We’ve got wide roads and large parking spots compared to many countries – we’re much more like the United States than we are Japan.

“It would be quite easy for governments to tweak the incentives, not only to stop giving tax advantages that make buying bigger vehicles cheaper, but also to send lots of little signals that if you want to run a great big vehicle it won’t be convenient in densely populated areas.”

Terrill said creating more small car-only parking spots was “a great idea”, but also believed introducing “much narrower lanes when building new roads” would send a signal that would encourage uptake of smaller cars, much like carpool and bus lanes.

“It’s important we nudge people the other direction away from larger vehicles.”


Elias Visontay Transport and urban affairs reporter

The GuardianTramp

Related Content

Article image
Number of electric vehicles on Australian roads soars as demand exceeds supply
Australia’s total of EVs almost doubled in 2022, growing from 44,000 to more than 83,000, sales data shows

Elias Visontay Transport and urban affairs reporter

06, Feb, 2023 @2:00 PM

Article image
Rise of ‘fuel-guzzling’ SUVs costing Australians $13bn extra at the pump per year, report finds
Exclusive: Thinktank says popularity of ‘big, dumb’ cars is turbocharging emissions and does not make sense in such an urbanised country

Elias Visontay Transport and urban affairs reporter

28, Mar, 2023 @2:00 PM

Article image
Scott Morrison denies attacking electric vehicles in 2019 as he unveils new Coalition policy
PM, who suggested EVs would ‘end the weekend’ during last election campaign, says he now expects them to make up only 30% of new sales by 2030

Adam Morton Climate and environment editor

09, Nov, 2021 @4:05 AM

Article image
Majority of Australians keen to switch from gas to electric to lower emissions, survey finds
Poll also revealed 65% of drivers expect to be buying a hybrid or electric vehicle if they upgrade in the next 10 years

Amy Remeikis

23, Apr, 2023 @3:00 PM

Article image
Sold out: why Australia doesn’t have enough electric vehicles to go around
Waiting lists of thousands, cars selling out in seconds – welcome to the frustrating world of the Australian EV buyer

Jordyn Beazley

26, Mar, 2022 @7:00 PM

Article image
Australia has a steep hill to climb on electric cars – but if ever there was a time, it’s now | Adam Morton
Consumers say yes, the numbers add up, industry is largely on board and Labor has no policy hang-ups. This week could be the turning point

Adam Morton

14, Aug, 2022 @5:30 PM

Article image
Electric planes sound like a fantasy but they may be the future for short-haul in Australia
With net zero technologies for long-haul flights still far in the future, opportunities may lie with smaller operators

Royce Kurmelovs

08, Jan, 2023 @2:00 PM

Article image
Labor’s electric vehicle strategy promises new fuel efficiency standard and battery recycling
Policy contains no new incentives to buy EVs but does aim to improve charging infrastructure

Paul Karp and Josh Butler

19, Apr, 2023 @1:14 AM

Article image
Ride-hailing rental startup Splend to transition Australian car fleet to electric
‘The economics are going to drive EV adoption,’ company founder says, citing petrol costs

Royce Kurmelovs

30, Mar, 2021 @1:42 AM

Article image
Electric vehicles just 3.39% of new Australian car sales despite sharp increase, report says
EV Council figures show uptake lags behind other countries with carmakers opting to send stock to faster-growing markets

Royce Kurmelovs

13, Oct, 2022 @4:30 PM