How does the Australian Luxury Tax work?
There are 3 things you must know about the LCT:
What is the Luxury Car Tax?
The LCT is a tax applied to vehicles with a price over $63,184.
The LCT rate is 33% and it is charged on vehicles under two years old. If the car is being sold for second time, there is a tax credit for the entire amount of LCT paid when it was first sold. Hence, unless the second-hand car that you are buying has actually increased in value, there is no LCT to be paid.
Technically the Luxury Car Tax – also known as LCT – is debited from the car seller, however, the dealer will systematically transfer this cost on to the car buyer.
How is the LCT calculated?
The Luxury Car Tax rate is 33% and the tax is payable on any car that has a sale price inclusive of GST (Goods and services tax) but exclusive of other government taxes, over the LCT threshold ($63,184). The LCT is only payable on the portion of the car sale price – GST excluded – that is over the threshold.
For a better understanding have a look at the following example:
If the car price is $100,000 including GST, but excluding dealer charges and other government fees. First we need to calculate the price of the car above the LCT: $100,000 – $63,184 = 36,816
Then we need to eliminate the GST of this price: $36,816 / 1.1 = $33,469.
Finally, to obtain the LCT we need to take 33% of this value: LCT = 33% x $33,469 = $11,044.77.
This number is then added to the car price. Hence the price you will need to pay will be $111,044.77.
Furthermore, if you add some options to the car like upgraded wheels etc. the price will change and so the LCT. This also means that a car that was not taxable by the LCT can become taxable if you add some options.
Can I avoid the LCT?
The short answer is no. However if you are part of a very small niche of people buying a very particular kind of car, you may be able to avoid paying LCT.
- Commercial vehicles that can carry more things that people by weight are exempt from LCT.
- Vans or trucks that can carry more than 2 tonnes worth of gear on-board are exempt from LCT.
- Motorhomes, campervans and GST exempt vehicles also avoid the LCT.
- Vehicles fitted out especially to carry disabled persons avoid the Luxury Car Tax too.
You can also pay less LCT if you choose a fuel efficient vehicle. Cars with a highway and city cycle fuel economy rating of 7.0L / 100km or less are subject to a higher LCT threshold ($75,375).
Want to save money? Why not import a car from the UK to Australia?
The deregulation of the Australian car market in 2018 will bring plenty of benefits for private buyers. A significant price gap between UK and AU cars emerges on vehicles with price above AU$63,184. Read more about the benefits from importing a UK car to Australia.
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