What Is Luxury Car Tax?

Remember when you were at university and you thought a luxury car would be one with a working air conditioner? Some people joke that a luxury car is one that takes five minutes to turn a corner. You’ll find, however, that the tax on a true luxury car is no joke. Here are the facts about luxury car tax.

What Is A Luxury Tax

On July 1, 2000, the Australian government eliminated sales tax and instituted the Goods and Services Tax (GST). With this decision, an actual dollar amount and description were placed on certain items, leaving no doubt about what designates them as luxury. The standard GST is applied to the purchase price on the item at time of purchase, and the luxury tax is figured from that point. In calculating the luxury tax, no other fees are included. For instance, registration fee on a motor vehicle, CTP, stamp duty, and government fees are not added into the purchase price‚ only the GST. If the item you purchase plus GST exceeds a pre-determined amount, luxury tax will be charged at a higher rate on the overage. In this way, yes, the Goods and Services tax not only cost you taxes, it also increases the taxable value of the luxury item you are buying.

What Constitutes A Luxury Car

In general, the price and age of a car determines whether or not it is classified as luxury. There are, of course, conditions that apply. You’ll become familiar with those in this article.

• Currently, a luxury car is a new or demonstrator model under 2 years old that costs over $57,466, including GST. The luxury car tax applies to any amount you pay for the car in excess of that amount. This amount may change from year to year, however, so be aware of potential changes with each purchase.
• Obviously, there are many vehicles that are not luxury cars that exceed the threshold for luxury designation. The luxury car tax (LTC) applies to these cars, with some exceptions (listed below), as well. This means that, in Australia this year, consumers will pay luxury tax on more than 100,000 vehicles.

What Is The LCT Rate

The luxury car tax rate at this time is set at 33%. This is up from 25%, with the 8% increase being approved in October of 2008. There are some concessions.

• Some fuel-efficient cars have a higher threshold before qualifying as a luxury car. If the car gets 100km per 7l of fuel, it qualifies as fuel efficient. You can spend up to $75,375 on this car (price of car plus GST) before you have to pay the luxury car tax. This exception applies to fuel-efficient cars sold after the legislated increase passed in October of 2008.
• Tourism operators pay the LCT, but will be refunded the 8% up to $3000 under certain conditions, and including four-wheel or all-wheel drive. They are allowed to claim refund for each eligible vehicle each year.
• Primary producers also pay the LCT, but will be refunded the 8% up to $3000 for one vehicle per year, under certain conditions and including four-wheel and all-wheel drive vehicles.

Cars Exempt From LCT

Included in the taxable considerations is the age of a car. This is determined by the build date on the car or on the compliance date on imported cars. Excluded from this tax are:

• Motor homes and campers
• Private sale vehicles
• Vehicles imported or sold before June 1, 2000 (the inception of the new taxing laws)
• Emergency vehicles such as ambulances
• Non-passenger commercial vehicles
• Vehicles immune from GST
• Vehicles equipped with wheelchair accessibility
• LCT is not charged on used cars over 2 years old, although it is charged on used cars that sell for more than the original sale price. In that case, LCT is calculated on the difference between the two purchase prices.
• LCT is not charged on cars less than 2 years old if it has already been paid in a previous purchase of the car, unless the car sells for more than the original purchase price. Additional LCT will be calculated on the balance.

How To Calculate The LCT

As stated earlier, the LCT is currently 33%. When the dealership quotes you the price of a luxury vehicle, the quote will include LCT. Remember, the GST is included in determining eligibility, but not other fees, registration, stamp tax, or CTP. The GST will later be removed from the equation.

1. Calculate the car’s price, including GST.
2. Subtract the current LCT threshold of $57,466 from the price of the car, including GST.
3. Divide the difference by 1.1 (the GST rate). This gives you a break on you GST because while you have to figure it in on the value of the car, you don’t have to pay LCT on it, after all.
4. Multiply the amount you got in the last step by 33%. This is the additional tax you pay on your car.

For example, an $80,000 car (quoted with the GST exclusively) will have $57,466 subtracted from the price of $80,000 (step 1). This leaves $22,534. Divide the $22,534 by 1.1 to remove GST from it (step 2). This leaves $20,485.This is the amount that qualifies your potential car as a luxury vehicle. Multiply this amount by 33% (step 4), and you have the LCT amount.

At this point, your car price will be calculated to include:

• The price of the car
• The LCT from step 4
• The GST
• Additional fees, charges, and registration

Calculation When The LCT Is Included

When you get a quote on a luxury car, the dealer’s quote already has the LCT included. This will help avoid sticker shock, since you already know the basic price of the car. It also makes it a little easier on the dealers, because the big charges are right up front. Usually, government fees other than GST are not included in this quote, so you’ll still have to add registration and other fees. You calculate the LCT in a car’s quoted price:

1. Take the quoted price exclusive of fees and registration. The quote includes price, GST, and LCT.
2. Subtract the LCT threshold of $57,466 from the amount in #1.
3. Divide this new amount (the one in #2) by 1.43. This divisor is a combination of the GST (10%) and the LCT (currently 33%).
4. The amount left is the price of the car, exclusive of taxes, that exceeds the LCT threshold. Multiply it by 33% (the current LCT rate), and you know how much the LCT is on this car.

For example, say the quote on a car is $100,000, exclusive of fees and registration. Subtract $57,000 from the amount (step 2), leaving $42,534. Divide this amount (step 3) by 1.43, leaving $29,744. You just removed the GST and LCT from the amount of purchase. Now, multiply the $29,744 by 33% (step 4). This amount, $9,815, is the amount of luxury car tax you are paying, and that was quoted in the original price.

A Short Story

To keep a long story short, as they say, luxury cars are passenger vehicles that cost more than $57,466. If they are used for tourism, the owners can get a break on some of the luxury car tax. Luxury cars are usually new cars, or no older than 2 years, and purchased from a dealer. If you purchase a used car from an individual, you probably won’t have to pay LCT on it. The luxury car tax is not applied to cars made before July 1, 2000, so vintage car buffs, for instance, need not worry about luxury taxes.

Vehicles that are used for emergency services, such as ambulances, or cars that are wheelchair accessible are exempt from luxury car tax. Vehicles that qualify as fuel efficient have a higher luxury threshold. Commercial vehicles not intended to carry passengers are not subject to LCT.

Finally, remember that the LCT and GST are usually included in the quoted price of the car. It’s hard enough to purchase a car and be shocked when registration, stamp tax, and other fees are added on, but to be hit with thousands extra in taxes on top of the price would be too much for any consumer. Just to be safe, however, be sure to ask the dealer if the two biggest taxes are included in the quoted price.

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