You’ve bought the car of your dreams. Negotiated the price. You think you’re done and dusted until you receive the final invoice and it’s not what you expected. There’s an extra amount you’re obligated to pay on the car to the Australian Taxation Office (ATO) called the Luxury Car Tax (LCT) which can add a considerable amount to the price of your car.
What is the LCT and how much do you have to pay?
LCT is a tariff put on new cars that are less than two years old and sold above a certain threshold by the ATO. This tariff is placed on luxury cars that are at the higher end of the market. The LCT was brought it to protect the local car manufacturing market in a bid to persuade Australian to purchase locally made cars.
The LCT is paid by the dealer and passed to the buyer and is included into the price with the Goods and Services Tax (GST). LCT is calculated at 33% of the value of the GST inclusive price of the car on the amount exceeding the LCT threshold.
How Is LCT Calculated?
To calculate LCT, you need to use the following formula:
LCT value – LCT threshold x 10 ÷ 11 x 33%
The LCT value is the retail price of the car and includes GST and customs duty, dealer delivery charges, standard and statutory charges, accessories, modifications and treatments, fleet rebates and support payments.
LCT doesn’t include other taxes, fees or charges (stamp duty, transfer fees and registration), compulsory third party insurance, extended warranties, service pans or any other costs associated with financing the car. For example, a car purchased at the price of $110,000 with a fuel consumption of 11 litres per 100 kilometres would attract an LCT amount of $12,245.40 and would bring the total price of the car to $122,254.40.
The LCT threshold rates have changed from 1 July 2021. This includes an upper limit on the cost used to calculate depreciation for the business use of the car. The car limit of $60,733 for the 2021-22 financial years on the year first used or lease applies.
GST can’t be claimed on LCT regardless of business use. The maximum amount of GST credit that can be claimed is one-eleventh of the car limit amount. For the 2021-22 financial year, the amount is $5,521.
The current LCT threshold for the 2021-22 financial year has been increased to $69,152. For fuel efficient cars, the threshold has increased to $79,659.
Pro Tax Tip: The LCT value includes the value of any parts, accessories or attachments supplied or imported at the same time as the car.
When Does LCT Apply
LCT applies to dealers who have an ABN and who purchase or deal in luxury cars, including retailers, wholesalers, manufacturers or any other businesses who sell luxury cars. You’ll also be required to pay LCT if you’re an individual who imports a luxury car.
A two year rule applies. LCT doesn’t apply to cars two or more years old from the time of supply, import or manufacture.
LCT also depends on the type of car bought. Cars designed to carry a load of less than two tonnes and fewer than nine passengers over the threshold will attract LCT. The ATO classified limousines as a car regardless of the number of passengers it can carry. If the car has been purchased for a person with a disability, LCT applies on the purchase of the car without disability-related modifications. LCT applies to those eligible cars over the threshold amount where the use is private, for rally or race driving, for staff salary packaging, for promotion or sponsorship purposes, an executive vehicle or a capital asset.
When Does LCT Not Apply
Certain vehicles will be exempt from attracting LCT. If you or your business are registered for GST, you may be able to defer paying LCT through quoting your ABN. The car should only be used to hold for trading stock, to carry out research and development for the car’s manufacturer or to export it GST-free.
If the car was imported more than two years before the sale, or exported as a GST-free export, LCT will not apply. Emergency vehicles, such as ambulances, fire fighting vehicles, police vehicles or search and rescue vehicles are exempt, as are motor homes, campervans or commercial vehicles designed for carrying goods and services rather than passengers. Motor cycles do not attract LCT.
Can I Save On LCT
There is no escaping LCT if you fall into the eligible luxury car criteria, however you’ll incur a lower rate of LCT by purchasing a fuel-efficient car. The ATO defines those cars with a fuel efficiency of 7 litres per 100 kilometres as a fuel-efficient car.
The current rate for a fuel efficient car is $79,659, versus $69,152 in the 2021-22 financial year. That’s a significant difference to consider and might mean the difference between paying LCT or dodging it altogether.
Pro Tax Tip: If the car has already attracted LCT, it will not attract the tax again even if the car is less than two year old.
ITP Accounting Professionals have helped Australian individuals and small business with their tax affairs, bookkeeping and financial advice for 50 years. That’s a lot of experience to be taken advantage of. Phone 1800 367 487 and chat with a friendly professional today.