What your client needs to know about the luxury car tax

You can judge whether a car is luxury or not, according to the government, if it costs more than $65,094 for 2017-18 (and $75.526 for “fuel-efficient” cars). It was $64,132 for 2016-17 (with unchanged fuel-efficient option).

It’s not an over-the-top price tag if you’re considering true “luxury”, but it’s enough to cop an extra tax.

The luxury car tax (LCT) kicks in after the above threshold is reached (GST-inclusive), attracts a rate of 33%, and applies to the amount that exceeds the threshold (ie. $65,094) — more details are here.

Before the goods and services tax era (before 1 July 2000) luxury cars were slugged with a 45% “wholesale sales tax”. The luxury car tax that replaced it was initially set at 25%, but has been 33% since 1 July 2008.

The tax is in addition to GST, and that price threshold includes GST but not charges such as stamp duty or compulsory insurance. The amount of tax is calculated only on the vehicle’s value over the threshold, not the GST portion of it (that is, there’s no tax on top of a tax).

Cars with such a higher value have a ceiling value assigned to them for the purposes of depreciation claims, which for 2017-18 is $57,581.

LCT also applies only to those registered for GST, so private sales are generally not covered (although it can still apply to imported luxury cars). Businesses acquiring a luxury car will be restricted in their claim for GST credits to the luxury car threshold, so if the car costs more than $57,581 (the depreciation value limit as mentioned above), GST credits are not available in respect of the excess. In other words, the maximum credit you could claim will be $5,235.

Exclusions
Generally speaking, vehicles not included are emergency vehicles, trucks or vans that carry more than two tonnes, and passenger carrying vehicles such as buses. Cars specially fitted out to transport disabled people are generally excluded, if the vehicle is supplied inclusive of GST.

Cars that are more than two years old escape the tax, so in general the LCT applies to mostly new vehicles – a second hand luxury car which has already had some depreciation deducted therefore may be a good buy.

Fuel-efficient cars (see definition below) are given a break. As long as the fuel-efficient vehicle costs less than the threshold, there’s no LCT to pay.

 

*Fuel-efficient is defined by the ATO as: “A fuel-efficient car has a fuel consumption that does not exceed 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”.

 

 


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