Luxury Car Tax explained

By David Bonnici, 16 Jul 2016 Car Advice

Hyundai Genesis Luxury car

If calculating the Luxury Car Tax has you confused, you’re not alone. David Bonnici takes some time to break down when the LCT applies on new vehicle purchases and how it’s calculated

The new financial year means the Luxury Car Tax threshold has gone up. However, the rise is almost as small as most people’s understanding of the controversial levy. We can’t fix the former but we can increase your understanding of all things LCT.

What is the Luxury Car Tax?

The Australian Tax Office (ATO) describes the Luxury Car Tax (LCT) as a tax on cars with a GST-inclusive value above the LCT threshold.

That makes no sense.

OK, in other words, a car less than two years old with a GST-inclusive price tag above a certain value will attract an LCT of 33 percent.  

Does it only apply to luxury cars?

No, it’s purely about price, not how soft the seats are. In short; it’s a car sold by a registered car dealer valued above the threshold. In fact some cars you’d consider to be luxury ­- the Mercedes C-200 Coupe for instance – don’t attract LCT because they’re priced under the threshold.

Does it apply to Australian-built cars?

Yes, if they’re valued above the threshold.

What is the threshold?

The threshold is indexed and goes up a little bit every financial year. For 2016-17 it is $64,132, however for fuel efficient cars with a combined economy rating of 7L/100km or better, the LCT doesn’t kick in until $75,526 (which is why quite a few European ‘luxury’ cars are exempt).

Interestingly, while the LCT threshold for gas guzzlers has risen by almost $7000 since 2010, the threshold for fuel efficient vehicles has only gone up by $526. This year’s $151 addition to that threshold was the first since 2011.

Mercedes-Benz C200 Coupe

So you pay 33 percent of the total price?

Thankfully, no. The LCT is charged on the amount over the threshold, not the entire price of the car. So if you’re buying a car that drinks 9L/100km for $72,000, the LCT applies to the $7868 over the $64,132 threshold.

That seems pretty simple.

Kind of. There’s also the matter of GST which has to be factored in, so it’s not as simple as charging 33 percent on the difference. It’s also worth noting that the LCT is charged to the seller not the buyer, but they will invariably pass it on to the buyer.

So, if Joe Bloggs Motors sells that $72,000 car, it must pay the LCT to the ATO.

To work out the LCT they need to:

1. Determine the amount above the LCT threshold; in this case it’s $7868 ($72,000 - $64,132).

2. Work out the GST included in the amount above the threshold
$7868 ÷ 11 = $715.27

3. Subtract that GST amount from that amount above the threshold
$7868 - $715.27 = $7152.73

4. Work out 33 percent of $7152.73 to determine the LCT payable
$7152.73 x 33 ÷ 100 = $2360.40

The total price of the $72,000 car will now be $74,360.40 plus any other on road costs such as registration.

Are there exemptions?

Yes. These include:

  • If the car is for a business and qualifies to be purchased under a company ABN;
  • If the car was manufactured in Australia more than two years before the sale;
  • If the car was imported more than two years before the sale;
  • If the car was exported as a GST-free export
  • A car that is (or is intended to be) registered for use as an emergency vehicle such as an ambulance, firefighting vehicle, police vehicle, or search and rescue vehicle
  • A motor home or campervan, or a commercial vehicle designed mainly for carrying goods and not passengers
  • A car with modifications for people with a disability
  • A car being sold more than once within two years will be exempt unless it goes up in value. You will need proof that LCT was already paid. 

For more information visit ato.gov.au/Business/Luxury-car-tax/