Luxury Car Tax

Are you considering purchasing a luxury car in Australia? Awareness of the hefty luxury car tax imposed on such vehicles is essential. The tax consequences of luxury cars can significantly impact the overall price you pay for your dream car.

To help you navigate this complex subject, we have created this guide to make you understand what luxury car tax entails, who it affects, and how it is calculated by the Australian Tax Office (ATO).

Knowing whether it falls under the luxury car tax bracket is crucial if you’re planning to buy a new or almost-new car. Stay informed, make wise decisions, and avoid surprises when driving that shiny, expensive car out of the dealership. So, without further delay, let’s dive into this topic in detail.

IN THIS ARTICLE

• What is Luxury Car Tax?
• What is the Luxury Car Tax Threshold?
• Who is Liable to Pay Luxury Car Tax?
• Specific Scenarios Where LCT is Applicable
• When is Luxury Car Tax Not Applicable?
• How To Calculate LCT on a Sale in Australia?
• Luxury Car Tax on an Import
• Luxury Car Tax on Resale of Previously Taxed Cars
• Reporting and Managing LCT Records
• Luxury Car Tax Adjustments, Credits, and Refunds 

What is the Luxury Car Tax?

Luxury car tax is a specific tax implemented by the Australian government on purchasing or importing luxury vehicles that exceed a particular threshold value.

The car’s total value, which is used to assess the applicability of the tax, comprises several components. These include:

• the purchase price of the vehicle
• the goods and services tax (GST) added to the purchase
• any customs duty incurred during importation
• the value of additional items such as accessories or attachments, and even the cost of delivery by the dealer

If the cumulative value of these factors exceeds the LCT threshold, which is subject to annual review and adjustment, the luxury car becomes liable for the tax.

It’s important to note that:

• the LCT is not applied to the entire value of the car but only to the portion that exceeds the threshold
• the current tax rate for luxury cars falling within this category is 33%
• the tax applies to the sale of vehicles that are two years old or less, indicating that they were either imported into Australia within the last two years or manufactured within the country during that time period
• the LCT calculation varies depending on whether the vehicle is classified as fuel-efficient or falls under the category of other vehicles

What Are Fuel-Efficient Vehicles?

A fuel-efficient car is defined as a vehicle with a fuel consumption rate of no more than seven liters per 100 kilometers, as per the combined rating established under the vehicle standards outlined in section 7 of the Motor Vehicle Standards Act 1989.

This criterion serves as a benchmark to identify vehicles that exhibit exceptional fuel efficiency, ensuring that they are distinguished and treated differently in terms of luxury car tax calculations.

Thus, fuel-efficient cars are recognized for their reduced environmental impact and are subject to a distinct approach when determining the applicable tax amount.

What is the Luxury Car Tax Threshold? 

As stated by the ATO, the luxury car tax (LCT) is determined as 33% of the vehicle’s GST-inclusive value that exceeds the luxury car threshold.

The thresholds for the Luxury Car Tax (LCT) in the fiscal year 2023/24 are defined as follows:

Vehicles that are fuel-efficient must have a value exceeding $79,659 in order to be subject to the tax, while all other types of vehicles need to have a value higher than $69,152 to be eligible for the tax.

The table below presents the luxury car tax (LCT) thresholds for the financial year you import, acquire, or sell a car. Keep in mind that the LCT thresholds are subject to change each financial year. Therefore, it is vital for you to carefully consider these thresholds when dealing with the importation, acquisition, or sale of a car in Australia.

Who is Liable to Pay Luxury Car Tax?

A. Registered Businesses

If you are registered or required to be registered for Goods and Services Tax (GST), and you sell or import a luxury car, you are generally obligated to pay Luxury Car Tax (LCT). This includes retailers, wholesalers, manufacturers, and other businesses involved in the sale of luxury cars.

B. Private Buyers

As an individual (private buyer), if you import a luxury car, you must also pay LCT.

In terms of the LCT, a car is defined as a motor vehicle (excluding motorcycles) that is specifically designed to transport a load of less than two tonnes and accommodate fewer than nine passengers.

Additionally, it is worth mentioning that a limousine is classified as a car for LCT purposes, irrespective of the number of passengers it is designed to accommodate. Therefore, limousines are included in the category of vehicles subject to LCT.

Specific Scenarios Where LCT is Applicable

When is Luxury Car Tax Not Applicable?

When it comes to the Luxury Car Tax (LCT), it’s important to be aware of specific scenarios and exemptions where you are not required to pay this tax. Understanding these exceptions is crucial for individuals and businesses involved in importing, selling, and modifying cars in Australia. 

This section provides an overview of these exemptions, outlining situations where LCT does not apply.

1. ABN Quoting

You are exempt from LCT when you quote an Australian Business Number (ABN) in the approved format. This exemption is applicable in specific circumstances and requires proper documentation.

2. Car Age and Importation

LCT does not apply to cars that weren’t imported and manufactured more than two years before the supply. Similarly, you are not liable for LCT if a car has been imported more than two years before the supply.

3. GST free Exports and Emergency Vehicles

LCT is not applicable if you export a car as a GST free export. Additionally, vehicles intended or registered for use as emergency vehicles, such as firefighting vehicles, ambulances, police cars, or search and rescue vehicles, are exempt from LCT.

4. Motor Homes, Campervans, and Commercial Vehicles

The Luxury Car Tax does not impose any obligations on campervans, motor homes and commercial vehicles that primarily aim for transporting goods rather than passengers. Regardless of their value, these vehicles are not subject to LCT.

5. Modifications for People with Disabilities

As mentioned earlier, you are not required to pay LCT for car modifications to accommodate people with disabilities. These modifications aim to enhance accessibility and mobility for individuals with specific needs.

6. Previously Paid LCT and Endorsed Public Institutions

You are not liable for additional LCT if you have already paid LCT on a car. Moreover, when you, as an endorsed public institution, import a car as a work of art or collectors’ piece solely for public display or sell such a car to another endorsed public institution for public display purposes, LCT is not applicable.

7. Unaltered Reimportation

If a car is reimported in an unaltered condition and the importer was either the manufacturer, owner, importer, or acquirer of the car before it was exported from Australia, LCT is not applicable.

8. Reimportation After Servicing, Repair, or Refurbishment

Cars serviced, repaired, or refurbished overseas and reimported into Australia on or after January 1, 2019, without any change in ownership, may be exempt from LCT.

How To Calculate LCT on a Sale in Australia

The main equation to work out the LCT amount on a car is:

(Purchase Price inc. GST – LCT Threshold) * (10÷11) * (33÷100)

The LCT threshold for the year 2023-24 is $76,950. The calculation is performed using the basic equation, resulting in an applicable LCT value of $6,915 for a car with a purchase price of $100,000 (including GST). 

Following is an example to make you understand the concept clearly.

Hence, when considering the luxury car tax, an individual purchasing a luxury car priced at $100,000 would incur a total cost of $106,915 ($100,000 + $6,915). This amount reflects the inclusion of the luxury car tax in the overall expense. And the LCT is passed onto the purchaser in the sale.

What Costs Are Excluded in Calculating LCT?

The LCT value of a car does not take into account the following:

• The luxury car tax that is already included in the sale price
• Other taxes, fees, or charges imposed in Australia, such as stamp duty, transfer fees, and registration fees
• Compulsory third-party insurance (CTPI)
• Extended warranties
• Costs associated with financing the purchase of car
• Service plans

Luxury Car Tax on an Import

When importing a car into Australia, it is crucial to understand how to calculate the LCT amount that needs to be paid.

By following a specific formula, you can determine the LCT based on the car’s value and other relevant factors. The steps involved are:

Start by determining the LCT value of the imported car. This includes the following components:

• The customs value of the car and any related parts, accessories, or attachments imported concurrently
• Additional amounts not included in the customs value for international transport and insurance of the car and related items.
• Customs duty and GST payable on the importation
• For GST free imports, an amount equivalent to the GST that would have been payable

Once you have the LCT value, you can use the following formula to calculate the LCT amount:

(LCT value – LCT threshold) × 10 ÷ 11 × 33%.

Example Calculation:

A company imports a car in the 2023-24 income year. The customs value of the car is $90,000 before GST, and he incurs additional import costs of $2,500 (inclusive of GST).

Step 1: Calculate the LCT value:

Customs value of the car: $100,000
GST applied at import (10% of $100,000): $10,000
Import costs (GST inclusive): $2,500

LCT value = $100,000 + $10,000 + $2,500 = $112,500

Step 2: Apply the LCT formula: 

(LCT value – LCT threshold) × 10 ÷ 11 × 33%

($112,500 – $76,950) × 10 ÷ 11 × 33%

$24,550 × 10 ÷ 11 × 33% = $10,665 (LCT amount payable)

Thus, calculating the LCT on imported cars involves determining the LCT value and applying the appropriate formula.

LCT on Resale of Previously Taxed Cars

When selling a car that is two years old or less and has already been subject to LCT, certain factors must be considered.

1. LCT Payment on the Latest Sale

If a car that is two years old or less has previously been subject to LCT, you may still be liable to pay LCT on the latest sale if the car’s value has increased.

However, the LCT payable for the latest sale is reduced by the total amount of LCT paid or due to be paid on any previous sale or importation. When calculating the LCT payable, it is important to consider any previous LCT adjustments, excluding bad debts.

2. No LCT Decreasing Adjustment

If a car two years old or less has decreased in value, there is no entitlement to an LCT decreasing adjustment or credit when reselling the car. This means that no adjustment is made to reduce the LCT amount based on the depreciation of the car’s value.

3. Documentation Requirement

Proper evidence must be provided to establish that LCT was previously paid or due to be paid on the car. This can include:

• Documents indicating that your supplier conducted a taxable luxury car sale due to your failure to quote your Australian Business Number (ABN).
• Invoices or documents associated with a prior taxable sale or importation.
• A written statement from a previous owner or supplier, specifying the amount of LCT that has been previously paid or is due to be paid.

Reporting and Managing LCT Records

As a business owner subject to LCT, reporting and maintaining comprehensive records is essential. This section guides actively reporting LCT and outlines the vital records you must maintain to ensure compliance and facilitate reviews.

These restrictions apply even if you plan to sell the car at a later stage. If you have quoted your ABN but subsequently use the luxury car for any restricted purposes, you will be required to pay the applicable LCT.

There are also specific considerations for retail car dealers and businesses involved in importing luxury cars. Retail car dealers can quote their ABN when purchasing a car as trading stock, specifically if it will be used as a demonstrator vehicle for potential customers.

Importing businesses can quote their ABN when importing a luxury car for restoration and subsequent sale, provided the car is solely held as trading stock without any other intended use.

When it comes to quoting your ABN, it is crucial to do so at or before the time of purchasing or importing the luxury car. Quoting your ABN after the purchase is prohibited, except in certain circumstances where adjustments may be allowed.

LCT Adjustments, Credits, and Refunds

In certain situations, adjustments, credits, and refunds may apply to the Luxury Car Tax for businesses. This section provides an overview of the options available for making adjustments, claiming credits, and seeking refunds for LCT payments.

1. Adjustments on BAS

If you are registered for GST and LCT, you can adjust overpaid or underpaid LCT on your BAS.

2. LCT Credits

If you are not registered for GST, you cannot make LCT adjustments on your BAS.

However, you may be eligible for an LCT credit if:

• You have overpaid LCT on a sale where the supplier paid an amount of LCT that was not legally payable, and you have paid the excess amount.
• You have paid LCT on a sale or importation but could not quote your ABN because you were unregistered at the time.
• You have exported a luxury car (on which LCT has been paid) as a GST free export.

Credit can only be claimed if no other valid claims for credit have been made.

To claim a credit for overpaid LCT on a sale, you must lodge the claim within four years of becoming entitled to the credit. However, make a claim to the Australian supplier for a GST free export.

3. Refunds

Primary producers and tourism operators who have acquired or leased eligible vehicles during a specific financial year are eligible to receive a refund on the Luxury Car Tax (LCT) they have paid.

In this context, an eligible vehicle refers to a passenger car that possesses either four-wheel drive or all-wheel drive capability and meets the minimum ground clearance requirement of 175mm. Additionally, off-road passenger vehicles are also considered eligible for a refund.

It is important to emphasize that primary producers and tourism operators must be registered for GST to qualify for an LCT refund. The refund claim must be submitted within four years from the date of entitlement.

Moreover, primary producers and tourism operators can claim a maximum refund of $3,000 for their Luxury Car Tax (LCT) payments. Primary producers can claim the LCT refund for one eligible vehicle per financial year, while tourism operators can claim the refund for each eligible vehicle acquired or leased within the same financial year.