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, and can add significantly 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 also be interested 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 vehicle's 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 whose price (including GST, excluding governments fees and charges such as stamp duty, registration & CTP) exceeds the Luxury Car Tax threshold, and LCT is charged on the portion of the vehicle's price that exceeds this threshold. The Luxury Car Tax threshold is increased each financial year, and currently stands at $57,180.00 (including GST) for financial year 2008-2009.
In other words, Luxury Car Tax does not 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 recently, 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. This increase has since been referred to a Senate Committee for review, but the Federal Government has indicated that the new rate will be applied retrospectively to all cars sold from the 1st of July 2008 onwards.
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, which is currently $57,180.00 (including GST).
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.
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.
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, excluding government fees and charges such as stamp duty, registration & CTP) that exceeds the Luxury Car Tax threshold (currently $57,180.00 including GST).
Calculating 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 - is done in the following way:
- Calculate the car's supply price, which is the total price of the car including GST and excluding government fees & charges (typically stamp duty, registration & CTP).
- Calculate the value of the car's supply price that exceeds the LCT threshold, by subtracting the LCT threshold ($57,180.00) from the car's supply price (calculated in step 1).
- 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.
- 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:
Therefore the total LCT payable on the car in this example (using the new LCT rate of 33%) is $9,846.00. 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 + $ 9,846.00 = $99,846.00, plus any government fees & charges.
It is also interesting to note the difference in LCT payable between the old LCT rate of 25% and the new LCT rate of 33% - over $2,000.00 in this example.
If you wish to calculate the LCT payable on a car you can use our Luxury Car Tax (LCT) Calculator.
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 buyer's more commonly want to know to calculate the amount of LCT already included in the price they have been quoted or have paid for a car.
Calculating the amount of LCT included in a car's sale price is done in the following way:
- Calculate the car's price including GST & LCT, but excluding any government fees & charges (typically stamp duty, registration & CTP).
- Calculate the value of the car's government charges exclusive price that exceeds the LCT threshold, by subtracting the LCT threshold ($57,180.00) from the car's price (calculated in step 1).
- 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).
- 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:
Therefore the LCT included in the vehicle's sale price in this example is $9,846.00 (using the new LCT rate of 33%).
If you wish to calculate the LCT payable included in a car's price you can use our Luxury Car Tax (LCT) Calculator.
How Stratton can help
Unfortunately Stratton Finance 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).