AADA Calls for Luxury Car Tax to be Abandoned

The Australian Automobile Dealers Association (AADA) has today called on the Federal Government to abolish the Luxury Car Tax (LCT).“LCT is an obsolete tax that discriminates against the motor vehicle retail sector and potentially distorts the market” said Mr Michael Delaney, AADA’s Executive Director.

Motor vehicles are the only good upon which the Government imposes a ‘luxury’ tax. Goods such as jewellery and watercraft, regardless of their retail value, do not attract a tax further to the GST. AADA therefore considers that LCT is discriminatory and unfair. “The LCT is an inefficient tax which distorts the market for higher value vehicles and unjustifiably penalises small business people, dealers, manufacturers and distributors, as well as consumers of such vehicles” Mr Delaney said. “The introduction of LCT has placed a significant compliance burden on dealers who face considerable penalties for non-compliance.”

AADA considers that LCT has the potential to distort the market for higher value vehicles, with consumers opting to purchase vehicles of a lesser value to avoid incurring the cost of the tax. “When consumers are presented with a choice between two vehicles, one which attracts LCT and one that does not, they are more likely to opt for the vehicle that does not” Mr Delaney said. Further, the value of the vehicle, on which LCT is assessed, also includes the cost of any ‘optional-extras’ where purchased such as mag wheels and other non-standard accessories. AADA considers that this has the potential to distort the retail market by encouraging car buyers to save on the amount of LCT payable by taking their vehicle to an alternative motor vehicle accessory retailer for fitting after purchasing the vehicle rather than having such accessories fitted upfront by the manufacturer or dealer.

The fact that LCT is payable on the GST-inclusive value of the vehicle means that the vehicle is effectively taxed twice even before stamp duty is collected by the states and territories. “LCT is nothing more than a tax on a tax; the Government is effectively double-dipping” said Mr Delaney.

LCT was introduced, with the GST, on 1 July 2000 to replace the 45 per cent wholesale sales tax.; The 25 per cent tax is applied to vehicles that have a GST-inclusive retail value exceeding $57 009. In 2004-2005, a year that saw record motor vehicle sales that far exceeded expectation, the ATO collected $298 million in LCT, $32 million below the budget forecast amount of $330 million. AADA considers the fact that LCT collections did not meet the ATO’s forecast amount is indicative that the luxury car market is not performing to expectations and that the tax is distorting the market and should be removed.

Further information, please contact Michael Delaney, Executive Director of AADA, on (02) 6273 4333.