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LUXURY CAR TAX EXPLAINED

Luxury Car Tax Explained

Owning a luxury car bestows upon you a marque of prestige - but you definitely pay for it by way of an often overlooked tax - the Luxury Car Tax or "LCT".

The Luxury Car Tax is a tax on cars with a GST inclusive price value above a threshold set by the Australian Tax Office.

The LCT in built into the invoice price charged by the dealer and can add a significant amount to the ultimate price you pay for your car.

 

 

 

What is Luxury Car Tax?

Luxury Car Tax

The Luxury Car Tax (LCT) is a tax within the Australian taxation system, collected by the Australian Taxation Office on behalf of the Australian Government.

LCT is payable by businesses which sell or import luxury cars, unless the business' Australian Business Number (ABN) number is quoted in the correct format to the supplier or Customs.

LCT is charged in addition to the Goods and Services Tax (GST), but it is not payable on the full price of the vehicle. LCT is only payable at the rate of 33% (up from 25% as of 1 July 2008, though no senate approval for this increase was obtained) of the value of the GST-inclusive value which exceeds the LCT threshold.

Luxury Car Tax Rate & Thresholds

Cars with a luxury car tax (LCT) value over the LCT threshold attract an LCT rate of 33%.

The LCT threshold is currently $66,331 AUD (for the 2018-19 financial year) but will be increasing to $67,525 in the new financial year (for the 2019-20 financial year).

A separate threshold of $75,526.00 AUD applies to fuel efficient cars that have a combined fuel consumption rating not exceeding 7 litres per 100 kilometres (based on a combined test cycle rating under ADR81).

Luxury Car Tax Thresholds

The following table lists the LCT thresholds for the relevant financial year – the financial year the car was imported, acquired or sold.

If you buy a car with a GST-inclusive value above these LCT thresholds, you must pay LCT. In general, the value of a car includes the value of any parts, accessories or attachments you supplied, or imported, at the same time as the car.

Financial Year Fuel-efficient vehicles Other vehicles
2019-20 $75,526 $67,525
2018-19 $75,526 $66,331
2017-18 $75,526 $65,094
2016-17 $75,526 $64,132
2015-16 $75,375 $63,184
2014-15 $75,375 $61,884
2013-14 $75,375 $60,316
2012-13 $75,375 $59,133
2011-12 $75,375 $57,466
2010-11 $75,375 $57,466
2009-10 $75,000 $57,180

 

LCT is reported on an organisation's Business Activity Statement at labels 1E and 1F. An organisation is not required to complete the LCT section of their BAS when they have elected the GST Instalment Option as LCT is included in this amount. Organisations which report and pay GST annually are only required to report LCT on their annual GST return (GSTR)

Businesses are only permitted to quote their ABN when the vehicle is used for the following purposes:

  • Exporting the vehicle in circumstances where the export is GST-free
  • Conducting research or development for the vehicle's manufacturer
  • Holding the vehicle as trading stock (not including for rent or leasing purposes)

The LCT becomes due and payable when you on-sell the luxury car or stop using it for a quotable purpose. This might happen if you hold a car as trading stock and start using it for private purposes or if it becomes a capital asset of your business.

When Luxury Car Tax Applies

When LCT Applies

Generally, you're required to pay LCT if you're registered or required to be registered for GST and you sell or import a luxury car – this includes retailers, wholesalers, manufacturers and other businesses that sell luxury cars.

You also have to pay LCT if you're an individual (private buyer) who imports a luxury car.

Generally, when LCT is payable on a vehicle, the LCT will already be included in the dealer's invoice price.

LCT applies to sales of cars that are two years old or less.

A car is more than two years old at the time of supply if it was manufactured locally or imported more than two years previously.

For LCT purposes, a car is a motor vehicle (but not a motorcycle) designed to carry a load of less than two tonnes and fewer than nine passengers. A limousine is classified as a car, regardless of the number of passengers it's designed to carry.

LCT applies to a car purchased by a person with a disability even if the car is GST-free. However, disability-related modifications are not subject to LCT.

LCT is imposed at the rate of 33% on the amount above the luxury car threshold - currently $66,331 for FY19

 

 

How is Luxury Car Tax calculated?

You only pay LCT on the amount by which the the car's price exceeds the Luxury Car Tax threshold.

The formula for calculating the Luxury Car tax is:

(LCT value - LCT threshold) x 10/11 x 33%

The LCT value is the retail price of the car, including:

  • GST and any customs duty
  • dealer delivery charges
  • standard and statutory warranties
  • additional items, such as accessories, modifications and treatments to the car before delivery or under an arrangement with the supplier or an associate of the supplier. These inclusions may be made at or before the time of delivery (unless made solely for the purpose of adapting it for driving by, or transporting, a person with a disability)
  • fleet rebates, run-out model support incentive payments and any other motor vehicle incentive payments that are third-party consideration.

The LCT value does not include:

  • LCT included in the sale
  • other Australian taxes, fees or charges such as stamp duty, transfer fees and registration
  • compulsory third-party insurance (CTPI)
  • extended warranties
  • costs associated with financing the purchase of the car
  • service plans.  

If LCT has already been paid on the car, you can reduce the amount you pay by the amount of LCT already paid.

 

 

Example of working out the LCT you must report & pay

Matty Bee Motors (MBM) sells a car (not qualifying as fuel efficient) worth $88,000 including GST. The LCT value of the car is more than the LCT threshold ($66,331 for the 2018–19 financial year) so MBM must pay LCT on the sale of the car.

To work out the amount of LCT:

(LCT value - LCT threshold) x 10/11 x 33%

($88,000 - $66,331) x 10/11 x 33%

$21,669 x 10/11 x 33% =$6,500

MBM charges the customer $94,500 ($88,000 including GST plus $6,500 LCT) for the car, excluding stamp duty, CTPI, registration and other charges.

MBM reports and pays $6,500 LCT on their next activity statement.

 

Reference: ATO - Working out the LCT on a sale

ATO - LCT Example

Calculate the LCT in the price of a car

When you purchase a luxury car, the dealer invoice price already includes the LCT.

How to calculate the LCT included in the invoice price?

1. Calculate the car's price excluding government charges (LCT Value).

$98650.10

2. Calculate the amount the LCT Value exceeds the LCT Threshold

$98650.10 - $66,331 = $32,319.10

3. Reverse out the GST & LCT paid from this value

$32,319.10 / 1.43 = $22,600.77

4. Multiple this GST & LCT exclusive amount by the LCT Rate

$22,600.77 x 33% = $7,458.25

 

* Based on LCT Rate & Threshold for FY19

 

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