The future of the controversial LCT will be decided early 2017. The Government is considering to abolish the tax and whether exemptions should be made for efficient passenger vehicles.
What is Luxury Car Tax?
Cars are the only item in Australia in which a tax is imposed based on their implied ‘luxury’.
Introduced in Australia back in 2000, LCT is a tax applied to luxury cars under two years old. Technically LCT is debited from the car seller, however, the dealer will systematically transfer this cost on to the buyer.
The LCT rate is currently 33% - increased by 8% since 2008 – and it is applied to vehicles over a certain price threshold, $64,132.00 (2016-2017).
This threshold is higher ($75,526.00) - for fuel efficient cars that have combined fuel consumption rating below 7 litres per 100 kilometres.
So, in other words, Australian consumers are paying LCT on cars that many would not classify as luxury cars just because their price is over $64,132.00 (which represents an average of 120,000 cars per year in AU).
If the car is being sold for second time, there is a tax credit for the entire amount of LCT paid when it was first sold. Hence, unless the second-hand car that you are buying has actually increased in value, there is no LCT to be paid.
The Luxury Car Tax rate is 33% and the tax is payable on any car that has a sale price inclusive of GST (Goods and services tax) but exclusive of other government taxes, over the LCT threshold ($64,132.00). The LCT is only payable on the portion of the car sale price – GST excluded – that is over the threshold.
1. Calculate the supply price of the car including GST, but excluding dealer charges and other government fees:
2. Calculate the price of the car above the LCT threshold:
$100,000.00 – $64,132.00 = $35,868.00
3. Remove the GST from the value of the car price that exceeds the LCT threshold dividing it by 1.1:
$35,868.00 / 1.1 = $32,607.28
4. Calculate LCT payable by multiplying the value obtained in Step 3 by the LCT rate (33%):
33% x $32,607.28= $10,760.40
This number is then added to the car price. Hence the price you will need to pay will be:
$100,000.00 + $10,760.40 = $110,760.40
Furthermore, if you add some options to the car like upgraded wheels etc. the price will change and so the LCT. This also means that a car that was not taxable by the LCT can become taxable if you add some options.
LCT has a mandatory character but in certain cases the cost can be minimised.
Example: If you buy a fuel efficient vehicle. Cars with a highway and city cycle fuel economy rating of 7.0L / 100km or less are subject to a higher LCT threshold ($75,375).
You may be able to avoid paying LCT if you buy a very particular kind of car including:
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