Renewed calls to scrap luxury car tax after hitting more Toyota than Porsche

There are renewed calls for the luxury car tax to be scrapped following record price increases in the new car market over the past 12 months.

Tax pundits and the auto industry have renewed their calls for Australia’s luxury car tax to be scrapped, calling it “a tax on a tax” that inadvertently adds costs to high-end family cars, not just cars. expensive prestige vehicles.

In a submission ahead of the announcement of the May 2022-23 federal budget, the professional accountancy body – Certified Practicing Accountants (CPA) Australia – said the luxury car tax was a complex and costly ‘relic’ of the bygone era of Australian manufacturing.

The luxury car tax was introduced in 2000 under Prime Minister John Howard.

It was designed to help protect Australian-made cars, most of which at the time cost less than the luxury car tax threshold.

When it was introduced, the Luxury Car Tax targeted prestige cars, limousines and high-end sports cars – because of their high prices.

But since the luxury car tax has been indexed to inflation – and the cost of new cars has risen – the luxury car tax has inadvertently hit more Toyotas than Porsches.

A 2019 survey by To drive found that Toyota customers paid more in LCT than Porsche, BMW, Audi and Jaguar/Land Rover buyers – adding weight to the argument that luxury buyers are no longer the only buyers affected.

The study showed that buyers of supercars and limousines contributed a fraction of the LCT paid by Toyota customers in 2018, with Toyota buyers paying $99.7 million in luxury car tax, compared to $97 million. million dollars for Porsche, 84.5 million dollars for BMW, 81 million dollars for Jaguar/Land Rover. and $45 million for Audi.

Industry experts say the luxury car tax could become a negotiating point if Australia were to strike a free trade deal with Europe, with negotiators on behalf of the European Union considering the tax on luxury cars as a “non-tariff barrier”.

However, scrapping the luxury car tax would leave the federal government short of nearly $1 billion each year, with the tax bringing in around $900 million in fiscal year 2020-21, up from around $500 million. million dollars a year ten years ago.

The latest revenue figure is a marked increase from previous years, with the luxury car tax earning the government $664 million in 2016-17, $695 million in 2017-18 and $640 million in 2019- 20.

How could a free trade agreement with the UK affect the tax on luxury cars?

The luxury car tax is back in the spotlight after Australia and the UK signed a free trade agreement (FTA) in December 2021, with suggestions the deal could lead to scrapping progressive or complete suppression of the CTL.

The free trade agreement with the UK saw the removal of a 5.0% tariff imposed on cars imported from the UK – a tariff which is still in force for cars imported from Europe in Australia.

In its submission to the federal budget, CPA Australia questioned the remaining tariff on European cars: “It should also be considered whether the 5% tariff on vehicle imports should also be maintained.”

Luxury car tax is levied on motor vehicles less than two years old (excluding commercial vehicles such as utes) and is levied on the seller – but passed on to the buyer – as part of the total price of the car.

It is a ‘tax on a tax’ as all new motor vehicles sold in Australia are subject to 10% GST – and luxury car tax is added to the Amount including tax above a certain threshold.

For fiscal year 2022-23, the luxury car tax is 33% for each dollar above the GST amount of $69,152.

For fuel-efficient cars – defined as those that claim to consume less than seven liters of fuel per 100 kilometers on the combined cycle – the luxury car tax is 33% for each dollar over $79,650, GST understood.

“LCT was [introduced] when Australia had a local manufacturing industry, to ensure there were benefits in pricing to support Australian cars, which tended to be below the LCT threshold,” said Elinor Kasapidis, Senior Director tax policy at CPA Australia. To drive.

“It was a protectionist policy, but [with local manufacturing gone] it no longer has a purpose. Now middle-income families trying to buy SUVs are feeling the brunt. We are not talking about Ferraris and Maseratis. It’s inefficient.

How are electric cars affected?

In addition to weighing down family SUV buyers or buyers looking to buy larger cars for business purposes, LCT can also affect potential electric car buyers.

“Although the LCT threshold is a bit higher for fuel-efficient cars and there are EVs available below the threshold, when you’re talking about a family-sized Tesla, it starts to cross the threshold quite quickly. “, explained Ms. Kasapidis. .

“Again, this affects middle-income families who want to do the right thing for the environment. This could affect whether or not people buy an electric vehicle.

What do car dealers think of the luxury car tax?

The auto industry has long advocated for the abolition of the luxury car tax.

In its pre-budget submission, the Australian Automotive Dealers Association (AADA) echoed recent calls to scrap the luxury car tax, arguing it would allow car prices to fall across the board.

“Prices of vehicles currently subject to the luxury car tax would certainly drop,” said AADA CEO James Voortman. To drive.

“The cost of the vehicles would be further reduced as there would be less stamp duty to pay as this applies to the LCT value of the car.

“The main beneficiary would be the customers because they are the ones absorbing the LCT and, depending on the vehicle, they could save tens of thousands of dollars.”

How much government revenue does the luxury car tax actually generate?

Currently, luxury car tax revenue is about $0.9 billion a year, or 0.2% of the government’s overall annual revenue of $452.7 billion. dollars.

“Nearly $1 billion seems like a very big number, but if you consider that it’s less than half a percent of the government’s overall revenue base, that starts to put things into perspective,” he said. Ms. Kasapidis.

“We don’t have a luxury tax on holiday homes, yachts or expensive wines, why cars? There is no good reason anymore. »

Is the luxury car tax likely to be scrapped?

Despite its relatively insignificant revenue compared to other taxes, the federal government is unlikely to come any closer to abolishing the luxury car tax in the 2022-23 federal budget.

The main driving factor behind its removal appears to be the negotiations over the new free trade agreement with the UK, but the details are not yet known.

Otherwise, “it’s not necessarily something that people worry about all the time,” Ms Kasapidis explained.

“The Australian car market is competitive and people are tolerant of the final price they pay. It’s easy to collect, it’s already in place, it’s not something the government wants to give up.

Susannah Guthrie

Susannah Guthrie has been a journalist since the age of 18 and has spent the past two years writing about cars for Drive, CarAdvice, CarSales and as an automotive columnist for several in-flight and hotel magazines. Susannah’s background is news journalism, followed by several years in celebrity journalism, entertainment journalism and fashion magazines and a brief stint hosting a television travel show for Channel Ten. She joined Drive in 2020 after spending a year and a half leading online platforms Harper’s BAZAAR and ELLE. Susannah holds a BA in Media and Communications from the University of Melbourne and cut her teeth as an intern at Time Inc in New York. She also took a course in television presentation with the National Institute of Dramatic Art.

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