If you’re given the opportunity to pick any car in history to own, what car would you choose? For at least the last decade, mine is the Toyota 2000GT painted in white. A Japanese take on the legendary Jaguar E-Type and no less beautiful, this handsome fastback is so drop-dead gorgeous that it made an appearance in the 60s James Bond flick You Only Live Twice as a convertible. As one of Japan’s first sports car, the 2000GT carries even more cachet in the 21st century when it became the first Asian car to fetch more than a million American dollars in an auction a couple years ago.
Ever since modern automobile was invested, they have always been part transportation and part status symbol among the population. After all, few things in life could make more of an impression that coming to work in a Bentley. Perhaps it’s because of this reason that luxury cars are prohibitively expensive in Australia, partly caused by added tax levied to cars costing above a certain threshold. If your business involves the use of cars that fall under this criterion, understanding how this cost works is important in calculating your small business tax.
Imports, classic cars and luxury car tax
Commonly referred to as LCT, luxury car tax is a tax charged at the purchase of a vehicle that meets the requirement of what the ATO defines as a ‘luxury car’. In Australia, LCT itself can be considered relatively new, first introduced in 2000 in conjunction with the introduction of the goods and services tax (GST). The tax itself was first drafted to support the local automotive industry but with the death of Australian cars since Holden ceased their production, it has been argued that the LCT no longer makes any sense.
In simple terms, the ATO defines luxury cars as cars that costs above a certain threshold, which for the 2018/2019 fiscal year stood at $66,331 while fuel-efficient cars, defined as cars that have a fuel consumption of less than 7 liters per 100 kilometers, which is roughly 14 km/l, has their own threshold of $75,526. These thresholds are set by the ATO in the beginning of the fiscal year and usually rise each year so expect next year’s value to be slightly higher than these.
How much is the LCT?
When it was first introduced up until 2008, the LCT stood at 25% of the portion of the car’s price that exceeds the threshold. This rate was raised to 33% in 2008 which came with the added condition for fuel-efficient cars as stated above. The car’s price that is used for the purpose of this threshold includes the cost of GST but does not include other charges and government fees such as stamp duty, registration and CTP. The more expensive the car, the more LCT you’re going to have to pay.
If you’re buying a car from a dealership, the listed price typically already takes LCT into account but ask them if you still want to make sure. If you’re importing a car on your own, let me give you an illustration. Say you’re importing a car that you bought for $90,000 and the current LCT threshold is at $60,000. This means that your car is $30,000 above the threshold and 33% of $30,000 car is $10,000. The total cost you’re going to have to pay is $90,000 + $10,000 = $100,000.
The conditions and exemptions for LCT
For every new car you purchase from a dealership that costs above the threshold, you’re going to have to pay for CGT. The ATO defines a new car that has never been bought, is less than two years old measured from the build date if it’s locally built or the compliance date if it’s imported. Motor home, camper van, large passenger cars such as buses and cars that have been specifically modified to transport the disabled seated in wheelchairs are exempt from LCT.
The common misconception is that this tax only applies to new cars but if you’re importing a classic car that has a market value above the aforementioned thresholds, the LCT would apply to you as well. For local used cars, you are only required to pay for LCT if they’ve never been paid for in the first place, i.e. they were originally sold before the LCT was introduced or if the cars have appreciated in value since.
For companies engaging in a primary production business (plant and animal cultivation, fishing, tree farming, etc), they can claim a refund of 8% up to a maximum of $3,000 on all-wheel drive vehicles that are used as a mode of transporting these goods. Tour companies using rugged vehicles can also claim the above refund. Primary producers may only claim this benefit to one vehicle per year while tour companies can claim it for each eligible vehicle.
A recent change also added an exemption for cars that are meant to be on public display. With this change in regulation, museums and galleries importing classic cars purely as a showpiece don’t have to pay for LCT. Private collectors, those who import cars more for their value and not as a mode of transportation still has to pay for LCT.
The death of the LCT?
Not unreasonably, LCT has always been controversial since it was first implemented two decades ago. Simply using a car’s price as a barometer gives a warped sense of luxury as the popular Toyota Landcruiser, less of a luxury and close to a necessity for those living in certain parts of Australia, is one of the cars subjected to an LCT in its current form. Unsurprisingly, a lot of noise has been raised about LCT in recent years, wishing it to be abolished or at least tweaked. For now though, the law still persists.