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Luxury Car Tax (LCT) Explained

Luxury Car Tax (LCT) is a tax charged when you buy a vehicle that meets a set of "luxury car" criteria. LCT can add a significant amout to the price you pay for your car.

Read on to find out what Luxury Car Tax is, which vehicles it applies to, how it is calculated and what it means for you. You may like to try our Luxury Car Tax (LCT) Calculator.

What is Luxury Car Tax?

Luxury Car Tax (LCT) is a tax levied on the sale of vehicles which meet a set of "luxury car" criteria. It was first introduced on the 1st of July 2000 in conjunction with the removal of sales tax and the introduction of the Goods and Services Tax (GST).

Luxury Car Tax is applicable to most new and demonstrator cars where the price (including GST and excluding government fees and charges such as stamp duty, registration & CTP) exceeds the Luxury Car Tax threshold. LCT is charged on the portion of the vehicle's price that exceeds this threshold. The Luxury Car Tax threshold is subject to change each financial year - to view the current LCT Threshold please click here.

In other words, Luxury Car Tax doesn't only apply to luxury cars, but rather to any car that meets certain criteria. More than 100,000 vehicles sold this year are expected to attract Luxury Car Tax.

Until June 2008, the Luxury Car Tax rate was set at 25%. In May 2008, the Treasurer Wayne Swan announced that the Luxury Car Tax rate would increase by 8% (to 33%) from the 1st of July 2008. Legislation to increase the LCT rate from the 1st of July 2008 became law on the 3rd of October 2008, with a number of concessions including:

  • LCT will not apply to certain fuel efficient cars (cars with combined-cycle fuel consumption of less than 7L/100km) sold on or after the 3rd of October 2008 whose price is less than a new, higher fuel-efficient car limit (including GST and excluding government fees and charges such as stamp duty, registration & CTP), and
  • Primary producers and tourist operators will be able to claim a refund of the additional 8% LCT (to a maximum of $3,000) on four-wheel or all-wheel drive vehicles under certain conditions.

When does Luxury Car Tax apply?

From a typical car buyer's point of view, Luxury Car Tax is payable on a vehicle when:

  • The vehicle is purchased from a dealership.
  • The vehicle is less than two years old, as measured from the build date for locally built cars, or the compliance date for imported cars. However, if a vehicle is sold used and LCT has already been paid on the vehicle (e.g. when it was sold new), a credit is applied for any LCT already paid. This means that except in the rare case where a used vehicle is sold for more than its new car value, LCT is effectively only payable on new cars and used demonstrator vehicles less than 2 years old.
  • The vehicle's price (including GST, excluding government charges such as stamp duty, registration & CTP) exceeds the Luxury Car Tax threshold.

And the vehicle is not:

  • A motor home or campervan.
  • A commercial vehicle, and is not designed principally to carry passengers.
  • GST-free and specifically fitted out for transporting disabled people seated in wheelchairs.
  • A fuel efficient car (combined-cycle fuel consumption of 7 litres per 100km or less) under the fuel efficient car limit (including GST and excluding government fees and charges such as stamp duty, registration & CTP).

When Luxury Car Tax is payable on a vehicle, the LCT will already be included in the price quoted by a dealership for that car.

Primary producers and tourism operators may be able to claim an LCT refund of up to $3,000.00 for eligible cars, including four-wheel and all-wheel vehicles. For primary producers this applies to one eligible vehicle per financial year. Tourism operators are able to claim the refund for each eligible vehicle per financial year.

How is Luxury Car Tax calculated?

The amount of Luxury Car Tax payable on the purchase of a car depends on the amount by which the car's price exceeds the Luxury Car Tax threshold.

Briefly, the LCT payable on a car is 33% of the GST-exclusive portion of the car's price (including GST but excluding government fees and charges such as stamp duty, registration & CTP) exceeding the Luxury Car Tax threshold.

Calculate the amount of LCT payable on a car - that is, the amount of LCT added to a vehicle's price by a dealership to calculate the total sale price of the car to a buyer - as follows:

  1. Calculate the car's supply price - the total price of the car including GST and excluding government fees & charges (typically stamp duty, registration & CTP). 
  2. Calculate the value of the car's supply price that exceeds the LCT threshold, by subtracting the LCT threshold from the car's supply price (calculated in step 1).
  3. Exclude the GST from the value of the car's supply price that exceeds the LCT threshold (calculated in step 2) by dividing this value by 1.1.
  4. Calculate the LCT payable by multiplying the GST-exclusive value of the car's supply price that exceeds the LCT threshold (calculated in step 3) by the LCT rate (33%).

The amount calculated in step 4 is the amount of LCT payable on the car, and this amount will be added to the car's price (along with any government fees and charges) by the dealership to determine the sale price for the car.

For example:

1) Calculate the car's supply price (incl. GST, excl. government charges)
$ 90,000.00
2) Calculate value of supply price exceeding the LCT threshold*
$ 90,000.00 - $ 57,466.00*
= $ 32,534.00
3) Exclude the GST payable from this value
$ 32,534.00 / 1.1
= $ 29,576.36
4) Multiply this GST exclusive value by the LCT rate
$ 29,576.36 x 0.33
= $ 9,760.20

* Please note that this example uses the LCT Threshold for FY12. To view the LCT Threshold for the current Financial Year, please click here.

Therefore the total LCT payable on the car in this example is $9,760.20. The dealer would then add this LCT amount and any government fees & charges to the car's supply price to determine the sale price. In this example the car's sale price would be $90,000.00 + $ 9,760.20 = $99,760.20, plus any government fees & charges.

Primary producers and tourism operators may be able to claim an LCT refund of up to $3,000 on eligible vehicles, but the Luxury Car Tax is payable upfront at the time of purchase.

Use our Luxury Car Tax (LCT) Calculator to calculate the LCT payable on your next car purchase.

How do you calculate the LCT included in a car's price?

When Luxury Car Tax is payable on a vehicle, the price quoted by a dealership for that car will already include the LCT.

Dealerships need to calculate the amount of LCT payable on a car to determine the vehicle's sale price (using the formula in "How Is Luxury Car Tax Calculated?", above), but buyers more commonly want to calculate the amount of LCT already included in the price paid (or quoted) for a car.

Calculate the amount of LCT included in a car's sale price as follows:

  1. Calculate the car's price including GST & LCT, but excluding any government fees & charges (typically stamp duty, registration & CTP).
  2. Calculate the value of the car's government charges exclusive price that exceeds the LCT threshold, by subtracting the LCT threshold from the car's price (calculated in step 1).
  3. Exclude the GST and LCT from the value of the car's government charges exclusive price that exceeds the LCT threshold (calculated in step 2), by dividing this amount by 1.43 (10% GST + 33% LCT).
  4. Calculate the LCT included in the car's sale price, by multiplying tax and government charges exclusive portion of the car's price that exceeds the LCT threshold (calculated in step 3) by the LCT rate (0.33 - 33%).

The amount calculated in step 4 is the amount of LCT included in the sale price of the car.

For example:

1) Calculate the car's price excluding government charges
$99,760.20
2) Calculate value of this price exceeding the LCT threshold*
$99,760.20 - $ 57,466.00*
= $ 42,294.20
3) Exclude the GST and LCT paid from this value
$ 42,294.20 / 1.43
= $ 29,576.36
3) Multiply this GST and LCT exclusive amount by the LCT rate
$ 29,576.36 x 0.33
= $ 9,760.20

* Please note that this example uses the LCT Threshold for FY12. To view the LCT Threshold for the current Financial Year, please click here.

Therefore the LCT included in the vehicle's sale price in this example is $9,760.20.

Use our Luxury Car Tax (LCT) Calculator to calculate the LCT included in the purchase price of your next car.

How stratton can help

Unfortunately stratton can't abolish Luxury Car Tax, but we can help you choose a car finance package that fits your requirements and minimises your total costs. Our car broking services can also help you find the cheapest price for your new car.

To get started, get an online car finance quote, send a quick online enquiry, or call us on 1300 STRATTON (1300 787 288).

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Original URL: http://www.strattonfinance.com.au/car-finance/learn/articles/luxury-car-tax-lct-explained.aspx

stratton offers finance and insurance for cars, properties, equipment and more. Visit us online at http://www.strattonfinance.com.au, or call 1300 STRATTON (1300 787 288).

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