The luxury car tax (“LCT”) applies to supplies of “luxury cars” which are over the luxury car tax threshold price.
LCT is payable on new cars and used demonstrator vehicles less than 2 years old. If LCT has already been paid on the vehicle, a credit is allowable.
The current luxury car tax rate is 33%
A ‘Luxury Car’
A car is excluded from consideration as a “luxury car” if it is both a commercial vehicle and is not designed for the principal purpose of carrying passengers.
For guidance and examples of ‘principle purpose’, see Luxury Car Tax Determination
LCTD 2023/1 Luxury car tax: how to determine the principal purpose of a vehicle
Luxury Car Tax Determination LCTD 2023/1 Key Points
Luxury Car Tax Determination LCTD 2023/1 explains how to determine the principal purpose of a car for Luxury Car Tax (LCT) purposes. The principal purpose is important in deciding if a car is a luxury car subject to LCT.
- Factors determining principal purpose include appearance, marketing, specifications, design rules, and more.
- Commercial vehicles not designed for carrying passengers are excluded from luxury car classification.
- Modifications to a vehicle’s principal purpose are assessed by considering permanency and effect on design. Significance and extent of modifications are crucial.
LCT Principal Purpose Examples From Determination LCTD 2023/1
Example 1 – Principal Purpose – Vehicles with Minor Modifications: Derek is modifying a 4×4 off-road wagon with seating for 7 people, converting it to an NB1 category goods vehicle. The modifications include a GVM upgrade and a paint job. Despite reduced seating capacity, the car’s principal purpose remains carrying passengers due to design features. When Derek sells the modified car, it’s considered a luxury car, subject to Luxury Car Tax (LCT).
Example 2 – Principal Purpose – Vehicles with Significant Modifications: Similar to Example 1, Derek modifies a car by removing seats, installing a goods-carrying tray, and making structural changes. These substantial modifications alter the car’s design enough that it’s not primarily intended for passenger carriage. Therefore, when Derek sells the modified car, it’s not considered a luxury car, and no LCT is payable.
Example 3 – Modifications – Readily Reversible Modifications: Tom is selling a modified luxury car with reversible changes, including different tires, roof bar, stickers, and folding seats with shelving. All of the modifications made to the car are capable of being readily reversed, and the car’s principal purpose remains passenger carriage. The modifications don’t change the car’s primary function, so LCT is payable on sale.
Example 4 – Modifications – Permanent Modifications: Matthew is purchasing a modified luxury car with permanent changes, such as cutting the chassis, removing seats, and adding a goods carrying tray. The modifications make the car predominantly designed for carrying goods. Consequently, when Dao sells the modified car, it’s designed for the principal purpose of carrying goods, and no LCT is payable.
Luxury Car Tax Other Key Points
- Fuel efficient cars are vehicles with fuel consumption below 7 litres per 100 kms.
- Deferrals of LCT payment are available for eligible dealers and importers, obtained by quotation of an ABN
- Eligible primary producers and tourism operators can within limits obtain refunds of LCT up to a maximum of $10,000 from 1 July 2019, or $3,000 up to 30 June 2019).
- The LCT collection and payment processes are administered through the GST and BAS returns systems at the ATO (see further info below).
- LCT is determined on the car’s price which includes GST but excludes government fees and charges such as stamp duty, registration & CTP. The “price” does not include finance charges – see LCTD 2014/1
- The LCT applies in addition to GST. It is determined by taking the GST inclusive excess of the price over the threshold, and then excluding GST on that excess amount before applying the tax percentage. The calculated LCT is then reduced by the amount of LCT already paid (if any).
The LCT only applies to supplies by entities registered for GST (typically a car dealership or importer), on vehicles less than 2 years old.
>> Note: For the luxury car depreciation limit go here <<
Deferral of GST (and therefore the associated LCT) is available in respect of a 3rd party vehicle incentive payment received or invoiced before the supply of the vehicle to the customer – i.e. before the total consideration for the taxable supply of the motor vehicle is known.
The deferral is until the tax period in which the consideration is known. Authority for the deferral is provided by a Legislative Instrument which takes effect from 1 January 2015. See Explanatory Statement here.
Deferral by Quotation of an ABN
LCT is validly deferred by car dealers (holding a license as such) making purchases for trading stock.
They do so by quoting their ABN number to the vendor dealer/wholesaler.
Parties are advised by the ATO to keep records supporting their actions.
Other instances when the quotation of an ABN is permissable include:
- an entity conducting research and development (R&D) on the car for the manufacturer, or
- intending to make a GST-free export.
See: Get your LCT right – ATO
Taxpayer Alert LCT Tax Avoidance
[2 Nov 2021] The ATO has issued an alert warning against a Luxury Car Tax avoidance practice implemented through a structured chain of entities.
Neither the brand dealer nor the end buyer at the beginning and end of the chain respectively may be aware of the illegality.
The kinds of example identified by the ATO include an entity within a chain of buy/sell transactions illegally withholding LCT from the Tax Office, whilst possibly at the same time also recovering LCT from the ultimate purchaser.
See: TA 2021/4 Structured arrangements that avoid luxury car tax
LCT calculation step by step
- Determine that the vehicle is a luxury car
- Determine the car’s supply price inclusive of GST, additional items and incentives, but excluding government charges such as stamp duty, registration & CTP – see Working out the LCT on a sale
- Subtract the current LCT threshold from the supply price (to determine the excess, if any over the LCT threshold).
- If the result is positive, see Step 4; or
- Otherwise stop, there is no LCT payable.
- Divide the result of Step 3 by 1.1 (to determine the GST exclusive value of the excess)
- Multiply the result of Step 4 by the current LCT rate. This result is the LCT payable.
LCT removed on re-imported cars refurbished overseas
With effect from 1 January 2019 and announced as a part of the 2018-19 budget, LCT is removed from cars re-imported following service, repair or refurbishment overseas.
See further Importing a Luxury Car
What is a ‘luxury car’?
A ‘luxury car’ is a motor vehicle with a carrying capacity of less than 2 tonnes and 9 passengers. It includes four wheel drives, passenger cars, station wagons, light trucks, limousines (regardless of the number of passengers).
LCT Luxury Car Tax Exemptions
A ‘luxury car’ does not include trucks and vans designed to carry a load of more than two tonnes, vehicles such as buses, designed to carry nine or more passengers, motorcycles or similar vehicles, unregistered racing and rally cars, prescribed emergency vehicles, cars more than 2 years old, campervans and mobile homes.
From 1 January 2020, primary producers can claim a refund of luxury car tax paid on one eligible vehicle per financial year, up to a maximum of $10,000, for vehicles delivered to them on or after 1 July 2019.
People With Disabilities
Generally cars used for transporting people with a disability may be excluded from LCT if not GST-free.
See more information for people with disabilities here and tax concessions on cars for people with a disability.
GST on Luxury Cars
Generally, the maximum amount of GST credit available is one-eleventh of the non-fuel efficient car limit (whether or not the car is fuel efficient).
No GST credit applies to any part of the Luxury Car Tax, regardless of business use.
Exceptional circumstances in which a full GST credit may be claimed, include:
- car held as trading stock (other than hire or lease)
- you carry out research and development for the car manufacturer
- emergency vehicle
- non-passenger (principle purpose) commercial vehicles
- motor home or camper van
- fitted out for wheelchair disabled (unless acquired GST-free)
- vehicle lease payments (to the extent of GST included)
- Luxury Car Tax Exemptions
- Luxury Car Tax – How To Complete Your Bas Statement
- ATO – GST and motor vehicles.
This page was last modified 2023-08-23