Luxury Car Tax Explained
Luxury car tax or LCT is a tax inflicted on cars with a GST-inclusive value above the luxury car tax threshold. The luxury car tax in Australia is imposed at the rate of 33% on the amount above the luxury car threshold itself. This LCT is paid by businesses that sell or import luxury cars known as dealers and also by those who import luxury cars. Owning a luxury car requires you to understand what is luxury car tax as it is something that is often overlooked when buying this type of vehicle. The LCT itself is built into the invoice price charged by the dealer and can add a large amount to the price that is paid for the car.
Read on to find out what Luxury Car Tax is, which vehicles it applies to, how it is calculated and what it means for you.
Registering a Luxury Car
You will need to register the vehicle for GST and luxury car tax if you operate a business that sells this type of car. You will also need to be registered for luxury car tax in Australia if you are an endorsed public institution and you purchase a luxury car for something other than public display. When registering for LCT, labels 1E and 1F will appear on your business activity statement, so you can adjust accordingly.
Will I have to pay luxury car tax?
You’re required to pay luxury car tax if you’re registered or required to be for GST and if you sell or important a luxury car and/or purchase one. Luxury car tax applies to the sale of cars that are two years old or less. A car is more than two years old at the time of supply if it was imported or manufactured more than two years prior. For tax purposes, a car is a motor vehicle that is designed to carry a load of less than two tonnes and fewer than nine passengers. While yes, an endorsed public institution must be registered for GST, if the vehicle is being used for public display, luxury car tax is not applied and a refund can be claimed at label 1F on your business activity statement.
When will Luxury Car Tax no longer apply?
When understanding what is luxury car tax, it is great to know when the tax doesn’t apply. Some instances it doesn’t include:
- When the car was manufactured in Australia more than two years before the sale
- Where the car was imported over two years
- When the recipient was quoted an ABN in an approved format
- To a car that is registered for use as an emergency vehicle
- To a car that is exported as a GST-free export
- To a campervan, commercial vehicle or motor home designed to carry goods, not passengers
- To the LCT value that LCT has already been paid on
How to Calculate how much Luxury Car Tax on a car
The method of calculating the amount of luxury car tax you need to pay will depend on whether you’re importing or selling a luxury car and whether luxury car tax threshold has already been paid or not. You report and pay luxury car tax on your activity statement the same way that business taxes are paid. You account for LCT using the same tax period as GST. You can pay this LST monthly, quarterly or annually. If you report and pay GST using a pre-printed instalment amount, don’t complete the LCT section of the activity statement then as it has been included already. Luxury car tax must be paid on time in order to avoid interest and other penalties.
Keeping Accurate Records for Luxury Car Tax (LCT) for business use
You need to record all sales and import transactions so you can report your liabilities properly and account for any credits, refunds or adjustments. Records should be kept for five years. This is in case you are reviewed by the Australian Tax Office.
Luxury Car Tax Rate and Thresholds
Cars with a LCT value over the threshold have a rate of 33%. The amount does change annually.
When Is luxury car tax charged?
uxury Car Tax (LCT) is a tax charged when you buy a vehicle that meets a set of “luxury car” criteria. LCT can add a significant amount to the price you pay for your car.
Why we have Luxury Car Tax: LCT is a tax on cars with a GST-inclusive value above the LCT threshold. LCT is imposed at the rate of 33% on the amount above the luxury car threshold. LCT is paid by businesses that sell or import luxury cars (dealers), and also by individuals who import luxury cars.
High-end luxury cars cost more in Australia than many other places. Part of that is because we’re a long way from manufacturing centres in Europe, Japan and the Americas, because our cars are made in a less common right-hand-drive layout, and because luxury cars have a higher than usual standard specification here. But those factors are much less significant than the Federal Government’s luxury car tax. Australian motorists pay a significant tax on new vehicles priced above a threshold that changes from year to year.
Will luxury car tax be removed?
The Turnbull Government announced that the luxury car tax (LCT) is here to stay for another 12 months, and that the threshold has shifted slightly, climbing to $65,094 for the 2017-18 financial year for cars that use more than 7L/100km, and remaining steady at $75,526 for cars that use less fuel than that.
The tax is imposed at a rate of 33 per cent above the threshold – so a fuel efficient car that costs $175,000 (pre-tax) requires the 33 per cent levy to be paid on around $100,000, resulting in $33,000 in LCT that pushes the car’s retail price well beyond the $200,000 mark.
An example calculation of Luxury Car Tax
LCT applies in addition to other measures such as a 5 per cent import duty and 10 per cent GST, so a model like BMW’s flagship 7-Series, which costs $305,461 before LCT and GST are factored in, comes in at $419,000 plus on-road costs.
Luxury Car Tax is payable on a vehicle when: ● The vehicle is purchased from a dealership.
● The vehicle is less than two years old, as measured from the build date for locally built cars, or
the compliance date for imported cars. However, if a vehicle is sold used and LCT has already been paid on the vehicle (e.g. when it was sold new), a credit is applied for any LCT already paid. This means that except in the rare case where a used vehicle is sold for more than its new car value, LCT is effectively only payable on new cars and used demonstrator vehicles less than 2 years old.
● The vehicle’s price (including GST, excluding government charges such as stamp duty, registration & CTP) exceeds the Luxury Car Tax threshold.
LTC is not applicable for: ● A motorhome or campervan.
● A commercial vehicle, and is not designed principally to carry passengers.
● GST-free and specifically fitted out for transporting disabled people seated in wheelchairs.
● A fuel efficient car (combined-cycle fuel consumption of 7 litres per 100km or less) under the fuel
efficient car limit (including GST and excluding government fees and charges such as stamp duty, registration & CTP).
Is luxury car tax included in a vehicles advertised price?
When Luxury Car Tax is payable on a vehicle, the LCT will already be included in the price quoted by a dealership for that car. Primary producers and tourism operators may be able to claim an LCT refund of up to $3,000.00 for eligible cars, including four-wheel and all-wheel vehicles. For primary producers this applies to one eligible vehicle per financial year. Tourism operators are able to claim the refund for each eligible vehicle per financial year.
Future of Luxury Car Tax
The current framework for a free-trade agreement with the European Union (EU) will finally see the disbanding of the 33 per cent Luxury Car Tax (LCT), starting in 2019 and if it does begin reducing by 2019, it will see the price of high end vehicles reduced substantially. The changes will have the most impact on vehicles costing more than $70,000.
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