Australia’s peak car dealer body is planning a High Court challenge against increased stamp duties on motor vehicles priced over $100,000 – as exclusive figures published by CarAdvice show Toyota customers pay more in Luxury Car Tax than do buyers of most prestige brands.
New levies – in addition to the 5 per cent import tariff on cars from the UK and Europe, 10 per cent GST, and the federal government’s 33 per cent Luxury Car Tax on most vehicles over $66,331 – were introduced in Queensland last year and are due to come into force in Victoria from July 1.
The NSW opposition pledged a similar increase to stamp duty on cars priced over $100,000 in the lead-up to this year’s state election to raise an additional $240 million “to help pay for nurses and midwives”. The proposal wasn’t implemented because the government was returned to office at the polls, but it may resurface at a later date.
The Australian Automotive Dealer Association (AADA) is now considering a “constitutional challenge” over what it calls a state-based luxury car tax amid fears other jurisdictions will try to impose similar stamp duty increases.
“Treasurers are treasurers, once they see one of their counterparts dip into the car buyer’s wallet, our concern is it will become contagious and other states might get the same idea,” said David Blackhall, the CEO of the AADA, which represents 1500 dealer groups covering 3500 new-car showrooms and more than 60,000 employees nationally.
“We are taking advice on the legality of what’s happened and there are serious-minded, well-informed senior counsel who are talking to us about aspects of this tax that may be in breach of our constitution.”
When asked to clarify if it is possible for a government to be challenged over the legality of a tax or stamp duty it has imposed, Mr Blackhall said: “It’s fair to say we are considering our options which might include a challenge to the state governments and their taxing powers under the constitution.”
Queensland introduced an additional 2 per cent stamp duty – on top of the 2 to 4 per cent already applied to certain models – on vehicles priced over $100,000 from 1 July 2018, after announcing the proposal two days before the state election in November 2017.
Victoria currently charges 4.2 per cent stamp duty on cars below the federal Luxury Car Tax threshold of $66,331, and 5.2 per cent on the total cost of cars over this amount.
In its May budget the Victorian government announced from July 1 2019 the stamp duty on cars over $100,000 will increase to 7 per cent of their total value. On cars over $150,000 the stamp duty will increase to 9 per cent of their total value.
For example, on a $100,000 car the stamp duty is currently $5200, from July 1 it will be $7000. On a $150,000 car the stamp duty is currently $7800, from July 1 it will be $13,500.
Both stamp duties are in addition to 5 per cent import tariff if the car is from the UK or Europe, 10 per cent GST and 33 per cent Luxury Car Tax on the amount over $66,331.
The budget is yet to go through the Upper House in Victoria. However once approved, the increases mean Victoria will have the highest stamp duty on motor vehicles nationally.
West Australia is the next highest, with 6.5 per cent stamp duty on new cars priced over $50,000.
Former Mercedes-Benz Australia executive David McCarthy, now an automotive industry consultant, says the attempt to raise revenue could backfire as car dealers find ways to avoid the higher stamp duties imposed by certain states.
“This could actually have the opposite effect because people will buy in another state or choose a car priced below the threshold,” said Mr McCarthy.
Buyers must have a valid interstate address to do this legally, but there may be other loopholes.
The Victorian government forecast the stamp duty increases would raise an additional $260 million next financial year, even though they don’t apply to primary producers, eco-friendly cars, and “demonstrator vehicles”.
Indeed, under the current guidelines, new-car dealers may be able to help buyers avoid the higher stamp duty by registering the vehicle a few days before delivery and selling it under the guise of a “demonstrator”, a technique the industry already uses to disguise discounts on new cars.
Rather than simply dropping the price, which could dent the long term resale value of a particular model for those who previously paid the full retail cost, the industry has been discreetly selling “undriven demonstrators” with a discount funded by the car company.
“It’s unfair, arbitrary, and based on envy, surely the motorist pays enough in taxes already,” said Mr McCarthy.
“The customer has presumably paid a high level of income tax to be able to afford the car in the first place, then there’s 5 per cent import tariff, 10 per cent GST, 33 per cent (federal Luxury Car Tax) and now some states want to pile on their premium. It’s unreal.”
In addition to the potential High Court challenge, the state-based stamp duty increase on luxury cars could come under scrutiny during negotiations on the Free Trade Agreement with Europe.
Cars imported from the UK and Europe attract a 5 per cent import tariff while those from Japan, Thailand, South Korea and the USA – our four largest sources of motor vehicles – are now tariff-free.
“The European Union will view these state-based stamp duty increases and the federal Luxury Car Tax as discriminatory tariffs and I think you will find the European car companies have already provided this level of detail back to their counterparts overseas,” said Mr McCarthy.
How stamp duty increases are applied – and how they vary from state to state
Queensland (since July 1, 2018):
The stamp duty for hybrid or electric cars is 2 per cent up to $100,000 but increases to 4 per cent on the total cost of those vehicles priced over $100,000.
The stamp duty for four-cylinder cars is 3 per cent up to $100,000 but increases to 5 per cent on the total cost of those vehicles priced over $100,000.
The stamp duty on six-cylinder cars is 3.5 per cent up to $100,000 but increases to 5.5 per cent on the total cost of those vehicles priced over $100,000.
The stamp duty for V8 cars is 4 per cent up to $100,000 but increases to 6 per cent on the total cost of those vehicles priced over $100,000.
Victoria (from July 1, 2019):
In its May budget Victoria announced that from July 1 the stamp duty on cars over $100,000 will increase to 7 per cent of their total value. On cars over $150,000 the stamp duty will increase to 9 per cent of their total value.
On a $100,000 car the stamp duty is currently $5200, from July 1 it will be $7000. On a $150,000 car the stamp duty is currently $7800, from July 1 it will be $13,500.
Stamp duty is 3 per cent on cars priced up to $45,000. On vehicles priced over $45,000 stamp duty is 5 per cent on the total cost, plus a $1350 fee.
In February 2019, NSW Opposition leader Michael Daley proposed a 7 per cent stamp duty on all cars priced above $100,000 but it did not come into force as the government was returned to office.
This reporter is on Twitter: @JoshuaDowling