Luxury Car Tax is applied to vehicles imported/sold in Australia with a price in excess of the thresholds applicable to the year and the vehicle type. The Luxury Car Tax (LCT) is a 33% tax which applies not to the entire price but to the excess of the price above the applicable threshold. Exemptions apply to commercial vehicles used to transport goods. The thresholds differ for fuel-efficient and other cars, as defined by the ATO.
These types of taxes, essentially a tariff, are primarily imposed by a country to protect its local industries from cheap imports. When the LCT was introduced, Australia did have a large vehicle manufacturing industry with Holden and Ford the two major brands. But with the exit of these and other brands from manufacturing in Australia, and with a push for free trade agreements by many countries, it appears LCT may be on the way out.
News media has reported that the re-elected Albanese Labor Government has plans to end LCT, as it enters talks with the EU on tariffs and trade. In the current global tariff scenario, free trade agreements with Europe are seen as providing opportunities for our key industries, especially agricultural produce.
If we are about to say goodbye to LCT, we could be saying ‘hello’ to lower pricing on many cars defined as ‘luxury’. At that current LCT thresholds for this financial year, that is cars priced above $80,567 and fuel-efficient models priced above $91,387. While the term ‘luxury’ conjures thoughts of aspirational brands such as Audi, Mercedes, BMW and Porsche, the threshold also captures many models from popular Japanese and South Korean brands. Buyers are not hit with any extra charge when purchasing, as the importer bears the tax and it is incorporated into the price offered to buyers.
With quite broad coverage of makes and models, many buyers may be keen to know when this may happen and how it will reduce the price of the car they are considering. The timing is unknown as, to our knowledge, there has been no official confirmation from the Government at this stage. The LCT is subject to a tax Act and as such, presumably needs a Parliamentary decision to amend or discontinue the specific Act. Prime Minister Albanese has recalled Federal Parliament from July, after the new Senate is in place.
What luxury car buyers can do in the interim is understand how LCT is currently impacting the price of the cars they are interested in and what savings they may make it is abolished on new models arriving in this financial year.
Luxury Car Tax: Overview
As the name implies, the Luxury Car Tax is a tax on luxury cars. Specifically, those imported and sold in Australia that have a price exceeding the threshold applicable to the year of import and/or sale. The current rate for this tax is 33%.
The 33% is taxed on the portion of the price inclusive of GST which exceeds the applicable threshold. The importer pays the tax to the government and then incorporates the charge into their selling price. The tax applies to cars with capacity for a maximum of 9 passengers and less than 2 tonnes. Motorcycles are not subject to LCT.
Different thresholds apply to petrol/diesel fuelled and fuel-efficient models. Commercial vehicles for use in business for goods transportation are exempt. The thresholds are changed each financial year, reflected price changes. Different thresholds apply to different years of importation/sale.
While buyers may only find out the exact amount of LCT included in their price when an invoice is received after purchase, at 33% it’s clear that the LCT on many vehicles can be a significant amount. If and when it no longer applies, the price of these cars could be found significantly lower.
Luxury Car Loan Options
A reduction in the car price then flows through to the finance and the loan payments. With less borrowings required to make the purchase a lower monthly payment may be achieved. Making many aspirational models more affordable and attainable for more buyers. When considering this possibility and using our Finance Calculators to work out loan estimates, buyers should take into account the normal price rises on new models.
High-end and models above the LCT price thresholds can be financed with the same loan products as all other cars. For private buyers that is the Secured Car Loan. For business buyers, the loan options include Leasing, Commercial Hire Purchase and Chattel Mortgage.
Buyers can request a quote to consider affordability and/or apply for pre-approved financing for the confidence to proceed to engage in negotiations with car dealers. For more information and updates on the future of LCT, stay tuned to our Blogs.
For affordable financing on cars subject to the Luxury Car Tax, contact Jade Finance online or by phone 1300 000 008.
DISCLAIMER: NO LIABILITY IS ACCEPTED IF ERRORS OR MISREPRESENTATIONS ARE FOUND IN THIS ARTICLE. THE ARTICLE IS PREPARED AND PRESENTED FOR GENERAL INFORMATIVE PURPOSES AND IS NOT INTENDED TO BE THE SOLE SOURCE OF INFORMATION FOR MAKING FINANCIAL DECISIONS. THOSE REQUIRING GUIDANCE AND ADVICE SHOULD CONSULT A FINANCIAL ADVISOR.
