Luxury Car Tax

26 August 2022

There’s something you may not know about Luxury Car Tax (LCT).

You have probably heard the Howard Government introduced the levy to encourage buyers to purchase locally manufactured cars instead of imported ‘prestige’ vehicles. 

But that’s not true.

In fact, LCT came into effect on 1 July 2000, as part of the GST transition, as a replacement for a 45 per cent wholesale sales tax that applied to luxury cars.  

Prior to that, buyers also had to pay 22 per cent tax on non-luxury cars.  

The government removed both taxes when it introduced GST, but then tipped LCT on top of GST for luxury car buyers. The idea was to effectively reduce what would have been a larger tax benefit for people who could afford to buy expensive cars, as opposed to those that couldn’t.  

The media reported the tax was designed to protect local car manufacturing. This wasn’t the case, even though LCT may have had some effect. 

Today, LCT is charged at 33 per cent on the proportion of a vehicle priced over $71,849 or $84,916 for vehicles categorised as ‘fuel efficient’ – that is, using less than 7.0L/100km.

It’s one of the laziest taxes in Australia which vacuums up something in the order of $1 billion annually for the Federal Government. 

Keep in mind there’s no luxury tax on diamonds or yachts or watches, as if the GST on expensive items isn’t enough...

VACC has called for the removal of this dud tax for years.  

Ironically, recent calls by the European Union (EU) to have LCT removed as part of a trade deal may give us the result we have been after.  

The EU says it’s not fair to load additional taxes on their vehicles at the point of sale. We agree.
   

Words: VACC CEO Geoff Gwilym. As featured in the Herald Sun on 26 August 2022.