Time To Re-Think The Luxury Car Tax

The recent release of the Tax Discussion Paper on 20 March has further highlighted the need to abolish the ‘absurd’ Luxury Car Tax (LCT).

The release of the Tax Discussion Paper by the Treasurer the Hon Joe Hockey MP on 20 March highlighted in Dealers’ minds that it’s time for the Luxury Car Tax (LCT) to end.

The LCT is a tax that is discriminatory, complex to administer and acts as a barrier to trade. The LCT tax rate of 33 per cent is an additional tax on a consumer, which in the words of a Dealer, ‘penalises those who have worked hard to achieve success and want to reward themselves.’

Back in 2010, the Henry Tax Review made its own assessment of the LCT: ‘Recommendation 80: The luxury car tax should be abolished.’

Hockey’s tax discussion paper states that the ‘LCT has a narrow tax base, is complex and is the Australian Government’s only tax on a specified good or service.’ It does not apply to other expensive items such as yachts, antiques, paintings, furs and jewellery.

In its current format, the LCT applies to a range of vehicles including passenger vehicles, station wagons, four-wheel drives and limousines. It was originally introduced as part of the GST tax reform package and applies to cars sold or imported into Australia (with some limited exceptions), where the value of a car exceeds a GST-inclusive threshold.

It currently applies at a rate of 33 per cent to the GST-exclusive value of the car (including accessories) when it exceeds the LCT threshold. For the 2014-15 year the threshold is $61,884 for regular cars and $75,375 for fuel-efficient vehicles.

The LCT raised $476 million in 2013-14.

The discussion paper notes that ‘the LCT’s thresholds may not be an accurate representation of luxury in the car market – for example, a seven-seater family vehicle and a small sports car may both attract similar amounts of LCT.’

Hockey’s discussion paper also acknowledges that ‘changes to the LCT have increased the tax’s complexity over time. For instance, the two thresholds are now indexed to different price indices, that is, the thresholds are no longer aligned with the ‘car (depreciation) limit.’

Meanwhile, some industries and vehicle types are eligible for exemptions, but the LCT’s interaction with GST has made this process more difficult.

It is estimated that in 2014 around 94 per cent of vehicles subject to LCT were imported. This has increased from around 89 per cent in 2005. With the cessation of manufacturing in Australia in 2017 the LCT is, in effect, a barrier to trade and at odds with the Government’s trade liberalisation policies and Free Trade Agreements.

For these reasons and more, AADA will be lodging a submission to the Tax White Paper Taskforce advocating for the abolition of the LCT.

With the Government’s current intention to reform Australia’s tax system across the board (in line with its objectives for lower, simpler and fairer taxes) – allowing the LCT to remain makes little sense.

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