Ending Luxury Car Tax: Economic Efficiency & Choice

The luxury car tax (LCT) is a tax on cars with a GST inclusive value above the LCT threshold. The Australian government introduced the LCT on 1st July 2000 in conjunction with the removal of sales tax and the introduction of the Goods and Services Tax (GST). LCT imposed at the rate of 33% above the LCT threshold.

Tax experts and the automotive industry have revived efforts to repeal Australia’s Luxury Car Tax, calling it a “tax on a tax” that unwittingly increases the cost of high-end family automobiles as well as expensive prestige vehicles. It was implemented in Australia to discourage the purchase of high-end vehicles and to raise revenue for the government.

It was designed to help protect Australian-manufactured cars, most of which at the time cost less than the Luxury Car Tax threshold. When it was implemented, Luxury Car Tax targeted prestige cars, limousines and top-end sports-cars – by virtue of their high prices.

LCT Thresholds

Abolishing the Luxury Car Tax in Australia Advantages and Implications

Why should the Luxury Car Tax (LCT) in Australia be abolished? There are several reasons why some people argue for its abolition:

1. 1. Economic Efficiency

Opponents of the Luxury Car Tax claim that it distorts the market and decreases economic efficiency. It is possible that charging an additional tax on luxury vehicles could discourage sales of high-end vehicles and limit consumer choices. As a result, the car industry and general economic growth may suffer unforeseen repercussions.

2. 2. Consumer Choice 

The abolition of the LCT may result in increased consumer choice. The abolition of the tax may make luxury cars more affordable to buyers, encouraging them to acquire higher-end vehicles. This might boost demand and assist the car sector and allied industries.

3. 3. Competitiveness

Australia competes with other countries in the sale of luxury automobiles. Countries with reduced or no luxury taxes may entice Australians looking for better offers. Australians will save money by getting rid of the LCT.

4. 4. Administrative Costs

The LCT requires additional administrative efforts to collect and manage the tax. Abolishing the tax could reduce these administrative costs and streamline the tax collection process.

5. 5. Market Impact 

Some argue that the LCT has a limited impact on reducing luxury car purchases, as high-income individuals who can afford luxury cars may not be significantly deterred by the tax. Instead, it could be seen as an additional cost for those who want to purchase luxury vehicles.

Strategies to avoid the LCT include:

• • Purchase a fuel efficient car (maximum 7 litres per 100/km) as a higher threshold of $76,950 applies.

• • Lease the vehicle instead of buying.

• • Omit some extra features to reduce the purchase price below the LCT threshold. The features can be added after purchase if necessary.

• • Purchase a second hand vehicle less than 2 years old (as the LCT has already been paid the purchaser gets a credit for the LCT previously paid).

• • Purchase a vehicle at least 2 years old (The LCT doesn’t apply irrespective of the value of the vehicle).

• • Buy the vehicle for commercial use. The LCT doesn’t apply to vans, trucks, & utilities that are commercial vehicles.

How can we help?

If you’re looking to buy a luxury vehicle and you need finance, talk to our brokers at Automotive Finance. We can help to find you a great deal and we’ll save you time, hassle and money.

Whatever you do, don’t let yourself get talked into dealer finance at a car yard. If you do, you’ll end up paying more for your vehicle than you should.

Call (02) 7900 3288 during business hours to get in touch with one of our expert vehicle finance brokers.