1st November, 2018 · Taxation Policy

Luxury Car Tax

AADA Position

The AADA believes that the LCT is an inefficient tax that discourages the uptake of safer and environmentally friendly vehicles. Furthermore, it is a non-tariff trade barrier which undermines our trading efforts with key allies.

Background

The LCT was introduced from 1 July 2000 as part of the GST tax reform package which saw the abolition of the wholesale sales tax (WST). The LCT rate of 25 per cent was increased to 33 per cent in 2008. In 2009 the Henry Tax Review recommended that the LCT be abolished and in terms of general principles stated that luxury taxes should not be used to raise revenue and are inefficient because of their narrow tax base. Taxing luxury goods was also regarded as an ineffective and arbitrary means of redistributing economic resources. Successive governments have ignored calls for abolition of the tax as it a contributor to budget repair and is proposed to be duplicated by the Queensland government in 2018.

The LCT rate of 33 per cent applies to cars sold or imported into Australia where the value of the car (including accessories) exceeds a GST-exclusive value. Taxes like the LCT do not apply to other luxury goods such as yachts, aircraft, jewellery, furs, antiques and paintings and is a relic of past Government policies implemented at time when Australia was a manufacturer of motor vehicles. LCT is discriminatory, inefficient and is perceived by trading partners as a non-tariff barrier. The LCT inhibits renewal of the Australian fleet with safer, fuel efficient and environmentally friendly motor vehicles.

The LCT rate of 33 per cent applies to the GST-exclusive value of the car (including accessories) above the LCT threshold of $66,331 for regular cars and $75,526 for fuel efficient vehicles. Revenue for 2016-17 was $664 million and is projected to rise to $720 million in 2020-21.