Fuel efficiency is the distance you can travel on an amount of fuel. A vehicle that only uses 7 litres of fuel to travel 100 kilometres is clearly more fuel efficient than one that uses 15 litres. There are many aspects to fuel efficiency and how a vehicle becomes a fuel efficient car. The seven factors that affect a car’s fuel efficiency are aerodynamics, speed, engine type, size, weight, axle ratio, and low emissions.

The Motor Vehicle Standards Act 1989 requires manufacturers and importers of vehicles to comply with the Australian Design Rules (ADRs) that cover fuel consumption labelling requirements. Fuel consumption labels must be attached to the front windscreen of all new vehicles sold. The label indicates how many litres of fuel a vehicle will use, and enables customers to compare vehicles with good fuel efficiency and lower greenhouse impact.

The ATO defines fuel efficient vehicles as those vehicles that have a fuel consumption not exceeding seven litres per 100 kilometres as a combined rating under the vehicle standards in force under section 7 of the Motor Vehicle Standards Act 1989.

The luxury car limit for 2015/16 for fuel efficient vehicles is $75,375 versus the standard $63,184 for non-fuel efficient vehicles. Although the owners of a fuel efficient vehicle are still only able to claim depreciation and GST input tax credits on the car cost limit of $57,466, there are still tax savings to be made.

The tax savings are due to the luxury car tax being imposed on the GST inclusive value of a fuel efficient vehicle that exceeds $75,375 versus the standard $63,184 for the non-fuel efficient vehicles. As the luxury car tax is imposed at the rate of 33% above these two thresholds, the tax saving available with a fuel efficient vehicle is effectively $4,064.

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