Toyota customers are paying more Luxury Car Tax than buyers of most prestige brands, prompting renewed calls to scrap the 33 per cent levy on vehicles priced above the $66,331 threshold.
Luxury Car Tax has reaped the Federal Government more than $5 billion over the past decade – including more than $695 million in the last financial year alone.
A special investigation by CarAdvice found Toyota customers paid $99.7 million in LCT last year compared to $97 million for Porsche, $84.5 million for BMW, $81 million for Jaguar/Land Rover and $45 million for Audi.
Buyers of supercars and limousines contributed a fraction of the LCT paid by Toyota customers in 2018.
Figures obtained by CarAdvice show Ferrari buyers paid more than $30 million in LCT in 2018, while Maserati customers contributed $18 million, ahead of Bentley ($17 million), Lamborghini ($14 million), Aston Martin ($13 million), McLaren ($7.5 million) and Rolls-Royce ($6 million).
The only motorists who paid more in Luxury Car Tax than Toyota customers last year were Mercedes-Benz buyers, who topped the list at $170 million.
In a bizarre twist, only three Toyota models are subject to LCT but dozens of cars from prestige brands are not slugged thanks to a loophole in tax regulations that favour certain types of luxury cars.
Confidential figures show 45,800 Toyota customers paid LCT on certain variants of the Kluger SUV, Prado four-wheel-drive, and LandCruiser 200 Series off-road wagon in 2018 – but only 13,000 Mercedes customers were slugged with the additional 33 per cent tax.
When Luxury Car Tax was increased from 25 per cent to 33 per cent by the Rudd Labor Government in May 2008, so-called fuel-efficient vehicles (that consume 7.0L/100km or less) were given a higher LCT-free threshold of $75,000.
The anomaly means that a $69,200 Toyota Kluger, a $73,600 Toyota Prado, and a $78,000 LandCruiser attract LCT – but dozens of Audis, BMWs and Mercedes-Benzes and other luxury cars are not hit with the extra tax (see list below).
In the Audi range, 38 vehicles from its 90-car line-up are exempt from LCT while 29 of 89 BMW models avoid the additional 33 per cent tax. And 25 of Mercedes’ 103 passenger cars are also not subject to LCT.
Another anomaly: top-end utes such as the $75,000 Ford Ranger Raptor and $79,000 Mercedes X-Class X350d Power edition do not attract LCT because commercial vehicles are exempt.
“The majority of people who pay Luxury Car Tax are average Australians who buy vehicles well under $100,000 to transport their families,” says Tony Weber, the CEO of the Federal Chamber of Automotive Industries. “Luxury Car Tax has become redundant in the Australian automotive market and the time has come to cease the charade that this is a justifiable, sensible or even a necessary tax.”
A statement from market leader Toyota said: “We believe [Luxury Car Tax] is an unfair impost on Australians and the automotive industry, as it applies only to vehicles and not to other items. Motorists already significantly contribute to government revenue when purchasing a vehicle through GST, stamp duty and registration fees.”
Industry insiders told CarAdvice both sides of politics are reluctant to scrap Luxury Car Tax amid fears of a voter backlash.
However, regardless of who is in power the Federal Government may have its hand forced by the European Union. If a Free Trade deal is to be signed with the EU, Luxury Car Tax will need to be scrapped, say industry analysts.
“The EU regards it as a false tariff,” says Weber. “The automotive industry fully supports a considered withdrawal from the Luxury Car Tax. A graduated reduction of the tax over an agreed period, such as five years, could see the government end this inequitable taxation in a structured and responsible manner.”
To avoid a buyer strike, one industry proposal would see the 33 per cent tax wound back gradually over five years.
The Australian Automotive Dealer Association says LCT is “a discriminatory tax on a perceived ‘luxury’ good” and “a legacy of obsolete policy that was forged when Australia had a car manufacturing industry”.
The AADA says Luxury Car Tax “acts as a barrier to the renewal of the passenger vehicle fleet at a time when technological improvements continue to make new cars safer, more energy-efficient and more environmentally friendly”.
“Individuals purchasing expensive vehicles are already paying more by virtue of the GST contribution they make on the final sale price. Furthermore, it is not clear why luxury vehicles attract a tax when other luxury products such as yachts, private jets and furs attract no such charge,” says the AADA.
However, fearing the LCT may not be abolished, the AADA has put forward several proposals as part of its submission to treasury ahead of the April budget.
“The AADA understands that the LCT is a useful source of revenue and that its removal would be seen as giving a free kick to the wealthier elements in society. Consequently, if the total abolition of the LCT cannot be contemplated within the next Budget cycle, then we propose the adoption of one or more of the following options,” says the AADA submission.
The AADA says the LCT threshold could be increased to $100,000 to better reflect “true luxury vehicles” but exclude accessories and zero-emissions electric vehicles from the additional tax.
However, the dealer body says “ultimately, LCT should be rolled back over a period of five years until it is eventually abolished”.
Examples of mainstream cars subject to Luxury Car Tax
Toyota Kluger Grande $69,200
Toyota Prado VX $73,600
Toyota LandCruiser GX $78,190
Nissan Patrol V8 $71,990
Examples of prestige cars that avoid Luxury Car Tax
Audi A4 Allroad 2.0 TFSI Quattro $74,800
Audi TT 2.0 Sport Coupe $74,700
Audi A5 Sportback 2.0 TFSI $70,100
BMW 230i Luxury Line Convertible $74,400
BMW 330i Sportline sedan $70,900
BMW X3 2.0d xDrive $69,900
Mercedes C300 sedan $71,400
Mercedes GLC250d $74,000
Mercedes SLC 180 convertible $71,900
Hey big spenders: LCT in 2018 by brand
Mercedes-Benz $170 million
Toyota: $99.7 million
Porsche: $97 million
BMW: $84.5 million
Jaguar Land Rover: $81 million
Audi: $45 million
Ferrari: $30 million
Lexus: $23 million
Maserati: $18 million
Bentley: $17 million
Aston Martin: $13 million
McLaren: $7.5 million
Rolls-Royce: $6 million
The Luxury Car Tax estimates for each brand are based on recommended retail prices and do not include factory-fitted options, which also attract LCT.
It means the actual LCT paid by customers of each brand is in most cases more than the estimates.
Figures were supplied by individual car brands or were calculations based on confidential detailed sales figures that the industry calls “cube data”.
Why was LCT introduced?
Luxury Car Tax was introduced in July 2000 to help protect the local car manufacturing industry as import tariffs were reduced and free trade deals were implemented.
It was originally set at 25 per cent on every dollar above $55,134, the threshold indexed to inflation each financial year.
The new-car import tariff is now just 5 per cent, having been as high as 57.5 per cent on passenger vehicles prior to 1987.
Import tariffs then dropped from 45 per cent in 1988 by 2.5 per cent each year. By the year 2000 the import tariff had dropped to 15 per cent before falling to 10 per cent in 2005 and 5 per cent in 2010, where it remains today.
However, Australia now has Free Trade Agreements with our four largest sources of motor vehicles: Japan, Thailand, South Korea and the US. It means four out of five cars sold in Australia are no longer subject to an import tariff.
LCT was increased to 33 per cent in 2008 by the Rudd Labor Government, with an exemption on fuel-efficient cars (that use 7.0L/100km or less) up to $75,375.
The current LCT threshold adds 33 per cent tax to every dollar above $66,331, having been indexed to inflation each financial year.
The LCT threshold for so-called fuel-efficient cars adds 33 per cent tax to every dollar above $75,526. It was originally fixed at $75,000 and then increased to $75,375 for six years. It has been frozen at $75,526 for the past three financial years.
With no car assembly lines left to protect – following the shutdown of Ford, Holden and Toyota factories in 2016 and 2017 – the automotive industry argues LCT is an unfair and discriminatory tax.
2000-01 LCT not disclosed
2001-02 LCT not disclosed
2002-03 LCT not disclosed
2003-04 financial year: $336 million (0.16 per cent of total taxation revenue)
2004-05 financial year: $302 million (0.16 per cent of total taxation revenue)
2005-06 financial year: $322 million (0.16 per cent of total taxation revenue)
2006-07 financial year: $365 million (0.16 per cent of total taxation revenue)
2007-08 financial year: $464 million (0.15 per cent of total taxation revenue)
2008-09 financial year: $384 million (0.13 per cent of total taxation revenue)
2009-10 financial year: $499 million (0.17 per cent of total taxation revenue)
2010-11 financial year: $483 million (0.16 per cent of total taxation revenue)
2011-12 financial year: $435 million (0.13 per cent of total taxation revenue)
2012-13 financial year: $434 million (0.13 per cent of total taxation revenue)
2013-14 financial year: $464 million (0.14 per cent of total taxation revenue)
2014-15 financial year: $520 million (0.15 per cent of total taxation revenue)
2015-16 financial year: $602 million (0.16 per cent of total taxation revenue)
2016-17 financial year: $664 million (0.18 per cent of total taxation revenue)
2017-18 financial year: $695 million (0.17 per cent of total taxation revenue)
Footnotes: Budget forecast for 2017-18 was $680 million. Budget forecast for 2018-19 is $710 million.
This reporter is on Twitter: @JoshuaDowling