13th March, 2014 · Policy Viewpoint

A Luxury We Can Do Without

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Enter, luxury car tax (LCT).

Over 14 years it has helped generate taxation revenue in excess of $3.6 billion, making its political popularity quite understandable.

Background and current thresholds

The LCT was originally introduced with the arrival of GST and the Government’s expectation that motor vehicle prices would fall.

AADA Strategy

Obviously, the most positive outcome for the AADA and Australia’s new car Dealers would be the removal of the LCT, however difficult circumstances mean a flexible approach to negotiations is essential to our cause.

Since the year 2000, members of the automotive industry have been united in their disdain for the infamous luxury car tax – in 2014 the AADA will rally for its abolishment.
Not many tax policies experience complete and even support from Australia’s two major political parties (particularly in recent years), but one stands out amongst the rest…

Enter, luxury car tax (LCT).

Over 14 years it has helped generate taxation revenue in excess of $3.6 billion, making its political popularity quite understandable.

Aside from most politicians, the tax has also enjoyed wide-spread support from Unions and social care organisations acting under the assumption that Australians who can afford ‘prestigious’ cars can afford to pay additional taxes.

Despite this reasoning, a number of inherent flaws in the policy’s structure have created complicated and unfair operating conditions for new car dealers in Australia.
For example, the tax’s discriminatory nature has been a particular pain point for the industry. The LCT does not apply to other luxury goods such as yachts, jewellery, watches, private aircraft and artwork.

Furthermore, the LCT which is considered punitive by international standards, discourages the purchase of new vehicles with generally superior safety and environmental features. It has also caused major administrative confusion and burden, particularly with the AP Group Federal court decision surrounding rebates and incentive payments.

Background and current thresholds

The LCT was originally introduced with the arrival of GST and the Government’s expectation that motor vehicle prices would fall. It was imposed to ensure that the price of luxury cars did not fall by more than the price of non-luxury cars. The LCT applies at a rate of 33 per cent on the GST inclusive value of domestic and imported cars over the threshold.

Today’s thresholds are $75,375 for fuel-efficient cars and $60,316 for other cars, and are indexed to the motor vehicle purchase sub-group component of the consumer price index (CPIMV).

A tax described by Economist Ken Henry in 2011 as ‘truly absurd,’ the LCT’s low threshold means that many vehicles not usually associated as ‘luxurious’ are affected by a substantial increase in price.

AADA Strategy

Obviously, the most positive outcome for the AADA and Australia’s new car Dealers would be the removal of the LCT, however difficult circumstances mean a flexible approach to negotiations is essential to our cause.

The government’s inherited budget deficit of approximately $47 billion, combined with voter perceptions of luxury, are major challenges to overcome.
Nevertheless, the AADA has a multi-level plan to achieve its objectives and is considering solutions such as a gradual phase out of the tax as well as a temporary threshold adjustment to $100,000.

In the coming months, the AADA will submit detailed reports and white papers to government ministers and continue to work to improve the conditions for new car dealers around this sensitive issue.