The luxury car tax (LCT) was originally intended to support the Australian automotive industry by encouraging people to purchase locally-made cars. Many Aussies are now critical of the LCT, given that Australia no longer has a domestic car manufacturing industry.
What's in this guide?
- What is the luxury car tax?
- How does the luxury car tax work?
- How does the luxury car tax apply to electric vehicles?
- How to register for the luxury car tax
- When should the luxury car tax be charged?
- Looking to buy a car that triggers the luxury car tax?
- How to calculate your luxury car tax
- Calculate luxury car tax
- Interested in buying a luxury car? Compare loans now
- Frequently asked questions
What is the luxury car tax?
The luxury car tax is a tax collected by the Australian Taxation Office on imported vehicles valued above a set price threshold. The tax is typically payable by businesses that purchase or import luxury cars as well as on non-business entities who import luxury cars. That outlay is then included in the price of the vehicle and passed onto a buyer.
The LCT is a tax of 33% applied to the remaining retail price of a car above the LCT threshold (including GST and other dealer fees and accessories, but excluding stamp duty, CTP, servicing packages and warranty extensions). However, this threshold is reviewed every year and other conditions will determine whether a car qualifies for LCT.
How does the luxury car tax work?
The LCT is a tax on the GST-inclusive total value of a car that is over the threshold set by the Australian Taxation Office.
As of 2020, it's only payable at a 33% rate on the value of the vehicle that exceeds the LCT threshold.
Because the LCT thresholds have changed over the years, here's a breakdown of the different financial year value bands.
When calculating the value of a car for LCT purposes, the value of parts, accessories or attachments supplied with the car will be taken into account. Though the cost of the LCT is typically borne by businesses, in some cases they can pass this cost on to the final consumer.
How does the luxury car tax apply to electric vehicles?
When it comes to electric vehicles, such as Tesla models, the luxury car tax bracket is the same as for fuel-efficient cars. Currently, many people deem this as unfair as it disincentivises people from purchasing zero-emission vehicles. The electric vehicle industry has been calling for an abolition of the LCT for electric cars for some time.
How to register for the luxury car tax
If you run a business that sells cars to consumers, you will need to have an Australian Business Number (ABN) and be registered for GST. You will need to satisfy both these requirements before registering for the LCT.
You can apply for an LCT business account in the following ways:
- Online at the Australian Business Register when you apply for an ABN
- By completing and submitting a hard-copy form
- Over the phone
- Through your registered tax agent or BAS agent
Applying for this type of account will mean that the 1E and 1F labels appear on your activity statement.
When should the luxury car tax be charged?
The issue of when the LCT needs to be charged can be quite a confusing issue for some business owners. Generally speaking, if you import or sell a car valued above the LCT threshold, you are liable for LCT. However, there are certain instances when the issue of LCT becomes a little more complicated. These include the following:
- Where the LCT has already been paid. If you sell a luxury car that is less than two years old and that has already been subject to LCT, you’ll only have to pay the LCT when selling the car if it has increased in value.
- When selling a car to an associate or a GST group member. Under these particular circumstances, the car is subject to LCT.
- When accessories, modifications and treatments are added. If any of these are made before the car is delivered to the customer or as part of an arrangement with the car supplier before the car is delivered, the cost will be included when calculating the LCT value of a car.
- When you defer your LCT payment. There are certain circumstances under which you can quote your ABN at the time of purchasing or importing a luxury car to defer paying LCT until you have sold or imported the car at the retail level. You’ll need to be registered for GST and have an ABN, plus you will need to either plan to hold the car for trading stock, to carry out research and development work for the car manufacturer, or to export the car where it is GST-free.
- When the car is purchased by someone with a disability. If a person with a disability purchases a car valued above the LCT threshold, LCT will apply. However, any modifications made to a vehicle for it to be driven by, or to transport someone, with a disability will not be included in the car’s LCT value.
- Endorsed public institutions. Endorsed public institutions, such as museums, galleries or libraries, purchasing a car locally will have to pay LCT if applicable. However, if the model is a collector's piece or work of art and intended for public display only, the institute can reclaim any LCT paid.
- Re-imported vehicles. If a model is bought locally and LCT is paid but then the vehicle is shipped out of the country for modification, repair, upgrades or restoration, it can be brought back in as a non-taxable importation. This might happen when purchasing a car that requires a modification that can only be carried out elsewhere.
Looking to buy a car that triggers the luxury car tax?
There are several financing options available that might help you manage the added cost. Compare car loans options from a range of lenders in Australia to help you save.
How to calculate your luxury car tax
Working out exactly how much LCT you will have to pay for your car can be influenced by a number of factors, including whether you are selling or importing the car. If you need to work out the amount of LCT payable on the sale of a luxury car, start by subtracting the current LCT threshold ($68,740 for ordinary vehicles, $77,565 for environmentally-friendly variants) from the price of the car (including GST). Next, divide this amount by 1.1 (the 10% GST rate). Finally, multiply the number you now have by 33, remembering that the LCT rate is 33%. This will give you the amount of LCT payable in your car.
The LCT value is a car’s retail price, minus any LCT included in the sale price and minus any other Australian taxes, fees or charges (but including GST, dealer fees, optional accessories, incentives and customs duty).
If you’re importing a car, use the following formula to calculate the luxury car tax payable: (LCT value – LCT threshold) x 10 ÷ 11 x 33 ÷ 100. It’s also important to remember that the LCT value of a car will include the following:
- The customs value of the car and any parts, accessories or attachments
- The cost of the international transport of the car to Australia
- The amount for the insurance of the car to be imported to Australia
- Any customs duty payable
- Any GST payable
- If the car can be imported GST-free, an amount equal to the GST that would otherwise have been charged is included in the car’s LCT value
Finally, if you supply a luxury car that is less than two years old and on which LCT has already been paid, the LCT you will have to pay for this latest sale can be reduced by the amount of LCT that was paid on the previous sale or importation. In these cases, you will only have to pay LCT if the car has increased in value, in which case LCT will only apply on the amount of the increase.
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