Car luxury tax 2014

Did you know that the Australian Government levies a tax upon cars over a certain value that are imported into the country? The Luxury Car Tax (LCT) can add a significant amount to the cost of a car.

Car enthusiasts who consider purchasing an expensive vehicle may be surprised to know that the Government imposes a Luxury Car Tax (LCT) upon imported cars over a certain value.

How does it work?

Cars with a value over the current LCT threshold are subject to a tax of 33 per cent. The tax is applicable to the portion of the car's value that is above the threshold, and not the total value of the cari. The tax is levied against the seller - the car retailer, wholesaler or manufacturer - not the buyerii. The seller will then often pass this substantial cost on to consumers by adding the amount of LCT paid on top of the car's retail price.

Importers and buyers of high-value cars often question why they are liable for an additional tax, while those who purchase other expensive commodities such as jewellery, yachts and art do notiii. The answer dates back to 1930, when the Australian Government introduced the Wholesale Sales Tax (WST). At the time, the local car manufacturing industry was under threat due to the depression. The Government concluded that taxing imported goods including cars through the WST could protect the local car manufacturing industry and help the country through the depressioniii. The introduction of the Goods and Services Tax (GST) in 2001 saw the scrapping of the WST, and the introduction of the LCT.

Fast forward to 2014, and with the recent announcements of the departure of Toyota, Ford and Holden, economists and businesses have been calling for the Government to axe the LCT . A recent review of the LCT conducted by the Productivity Commission concluded that the tax is a "higher cost and less efficient method of raising revenue than more broadly based taxesii", and recommended that the tax be reformed.

Despite opposition from car manufacturers and other affected businesses, the tax is still in place and the Government has forecast that it will create $1.38 billion in tax revenue over the next four yearsv.

LCT cost calculations

Calculating the amount of LCT for a luxury vehicle is quite simple and comes down to a handful of determining factors. Many dealers will include the cost of LCT in the car's sale price, although some may absorb the cost to keep their prices competitivevi.

Firstly, there are two different thresholds applicable to the LCT. If the car in question has a fuel consumption of no more than 7L/100km, it is considered to be a fuel-efficient car and the threshold of $75, 375 (2013-14 financial year) is applicable. All other vehicles are subject to the threshold of $60, 316 (2013-14 financial year)vii.