Luxury Car Tax (LCT) is a tax levied on the sale of new or near new vehicles which meet a set of ‘luxury car’ criteria. It was introduced in 2000 in conjunction with the removal of sales tax and the introduction of the Goods and Services Tax (GST).
Want to learn more about the Luxury Car Tax?
1. Luxury car tax (LCT) is a tax on cars with a GST-inclusive value above the LCT threshold
Luxury car tax (LCT) thresholds
2. LCT is calculated at the rate of 33% on the amount above the luxury car threshold and depending on the fuel efficiency of the vehicle
3. LCT is paid by businesses and individuals who sell or import luxury cars
4. LCT applies to the sales of cars that are two years old or less
What makes a ‘Luxury Car?
When you think of the words Luxury Car, many think Porshe or Ferrari or maybe even Mercedes but the actual answer for tax purposes is quite different. Contrary to perception, Luxury Car Tax impacts Toyota more than brands such as Audi, BMW, Mercedes-Benz and Porsche because Toyota sells more models above the $64,132 threshold than do the German brands.
Luxury Cars for the sake of the LCT, are motor vehicles that are not a motorcycle and are designed to carry a load of less than two tonnes and fewer than nine individuals.
How to Calculate the Luxury Car Tax
The formula to calculate the luxury car tax is as follows:
(LCT value – LCT threshold) x 10/11 x 33%
The Luxury Car Tax Value of the vehicle includes:
1. GST and any customs duty (this excludes stamp duty, registration and transfer fees)
2. Dealer delivery charges
3. Standard and statutory warranties (not extended warranties)
4. Additional items like accessories and modifications, like reversing sensors, roof racks etc
5. Fleet rebates run-out model incentives or other incentives for provided to entice the purchase
To understand how this works, let’s look at the following case study:
Johnson Motors sells high end luxury cars. They sell Terry a vehicle for $88,000 including GST (not fuel efficient). The LCT value of the car is more than the Luxury Car Tax threshold of $64,132 so Johnson Motors has to fork out $7,160 in LCT on the sale of the car.
($88,000 – $64,132) x 10/11 x 33% = $7,160
Like many car dealers, Johnson’s passes on this cost to Terry and he must pay $95,160 for his car.
If Terry were to sell the car again within the first two years, he may be liable for additional LCT. It is levied on the sale however is reduced by all previous tax payments made on the vehicle so effectively, he is only liable if he sells the car for a profit (good luck!).
The tax is expected to earn the government about $570 million this financial year alone. However, the government flagged in its budget in May that Australia’s appetite for luxury cars meant it would reap a $240 million bonus from the tax over the next four years.
If you’re concerned how the Luxury Car Tax may affect your new purchase or want to look at your options of purchasing a luxury car through salary packaging to reduce some overall tax, give the team at JBS Salary Packaging a call to discuss.