What clients need to know with regard to “luxury” sets of wheels

 

According to the government, a vehicle is a “luxury” if it costs more than $66,331 (for 2018-19) or $75.526 (for “fuel-efficient” cars). It was $65,094 for 2017-18, with the same fuel-efficient price level. The target to be rated fuel-efficient by the way is for the vehicle to use less than seven litres of fuel per 100 kilometres.

Generally a taxpayer is required to pay luxury car tax (LCT) if they’re registered or required to be registered for GST and they sell or import a luxury car – this includes retailers, wholesalers, manufacturers and other businesses that sell luxury cars. An individual (that is, a private buyer) will also have to pay LCT if they import a luxury car.

It’s at the above thresholds that LCT kicks in, GST-inclusive, which is applied at a rate of 33% to the amount that exceeds the threshold — more details are here. The threshold (also known as the LCT value) includes:

  • GST and any customs duty
  • dealer delivery charges
  • standard and statutory warranties
  • additional items, such as accessories, modifications and treatments to the car before delivery or under an arrangement with the supplier or an associate of the supplier. These inclusions may be made at or before the time of delivery (unless made solely for the purpose of adapting it for driving by, or transporting, a person with a disability)
  • fleet rebates, run-out model support incentive payments and any other motor vehicle incentive payments that are third-party consideration.

The LCT value does not include:

  • LCT included in the sale
  • other Australian taxes, fees or charges such as stamp duty, transfer fees and registration
  • compulsory third-party insurance (CTPI)
  • extended warranties
  • costs associated with financing the purchase of the car
  • service plans.

Working it out
The formula to work out the LCT is: (LCT value − LCT threshold) × 10/11 × 33%. Helpfully, the ATO provides a sample.

Circle Work Motors (CWM) sells a car (that does not qualify as fuel efficient) worth $88,000 including GST. The LCT value of the car is more than the LCT threshold ($66,331 for the 2018-19 financial year) so CWM must pay LCT on the sale of the car.

To work out the amount of LCT: (LCT value − LCT threshold) × 10/11 × 33%
($88,000 − $66,331) × 10/11 × 33%
$21,669 × 10/11 × 33%
= $6,500

CWM charges the customer $94,500 ($88,000 including GST plus $6,500 LCT) for the car, excluding stamp duty, CTPI, registration and other charges. CWM reports and pays $6,500 LCT on the next activity statement.

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.

Cars with such a higher value have a ceiling value assigned to them for the purposes of depreciation claims, which for 2018-19 is $57,581 (which is unchanged from 2017-18).

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.

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