Were you aware that when purchasing a car over a certain price point a luxury car tax is applied? Most buyers may not be aware of this tax as it is paid by the importer or the dealer and would be incorporated in the price of the vehicle, not listed as an extra such as stamp duty.
The Australian Taxation Office determines the rate of Luxury Car Tax or LCT and the threshold of when it applies. These are reviewed annually. As LCT impacts the pricing of new vehicles that are imported, it therefore can impact the financing as in the amount required for the loan and hence the repayments.
Jade Car Loans covers Luxury Car Tax, the threshold changes made by the ATO for FY24, the different LCT for EVs and financing options for luxury vehicles.
What is the Luxury Car Tax?
LCT is applied to cars with a price/value including GST above the threshold as determined by the ATO. The current LCT rate is 33%. This is charged on the amount of the price/value over the relevant threshold. LCT is payable by sellers or importers of luxury cars such as dealers. This tax is applied to cars that are two or less years old.
What is rated as ‘luxury’ for Luxury Car Tax?
While most buyers would equate ‘luxury’ with high end brands such as Audi, BMW and Mercedes-Benz, for LCT, the definition is far broader. It applies to all motor vehicles – not motorbikes, that are designed to carry less than 9 passengers and carry loads below 2 tonnes. Limousines are classified as cars, regardless of how many passengers they are designed to carry.
With that definition and the current threshold for LCT, this tax may apply to a large number of imported makes and models. While cars purchased by people with disabilities are subject to LCT, the disability-related modifications made to the vehicle would not be subject to the tax.
Luxury Car Tax Thresholds FY24
The ATO reviews the thresholds for LCT annually and has increased the levels for the financial year 2023-24. The thresholds are different for fuel-efficient vehicles compared with other fuel-system vehicles.
LCT FY24 Thresholds:-
- For fuel-efficient vehicles, the threshold has been lifted from $84,913 in 2022/23 to $89,332 for the current financial year.
- For other vehicles, the threshold has been lifted from $71,849 in 2022/23 to $76,950 for the current financial year.
So the 33% LCT would apply to the price above those thresholds.
With a more generous threshold for fuel-efficient vehicles, this may present an incentive to move to an EV. With the price increases being seen in the automotive sector as a result of global inflation, and supply and demand issues, this tax break on LCT will no doubt be welcomed by buyers and motor dealers.
Financing Vehicles Subject to Luxury Car Tax
Luxury Car Tax applies to the vehicle not the type of buyer or the purpose for the vehicle. That means that both private and business buyers of vehicles over the LCT threshold will be paying LCT in their pricing.
Our full range of personal car loans and business vehicle financing products are available for vehicles subject to LCT. As the LCT is paid by the dealer or importer, it is not added to the cost of the vehicle to the buyer. LCT does not affect the financing product, interest rate or other aspects of the car loan.
For most buyers of new cars for private use, as well as those seeking easy commercial car loans, our Secured Car Loan will be the most suitable form of financing. This loan allows the car to be accepted as security against the loan. The interest rate is fixed, the term is fixed, and equal monthly loan repayments are in place. When all the repayments are finalised, the lender releases the security. Comprehensive insurance is required to be taken out on the vehicle under finance.
Business buyers, especially those considering hire purchase car options, have a choice from several commercial credit products to finance new vehicles. These include Chattel Mortgage, Lease, and Commercial Hire Purchase. For business owners not familiar with commercial loan products, including hire purchase car financing, there are differences in suitability to cash or accruals methods of accounting, in the way tax deductions are realised, how GST is treated, interest rates, and in the approach taken to the balance sheet. Referring to an accountant in deciding which is the most suitable option is highly recommended.
For cheaper finance on all types of cars, contact Jade Car Loans at 1300 000 003.
DISCLAIMER: IN REGARD TO MISREPRESENTATIONS AND ERRORS CONTAINED IN THE MATERIAL AS PRESENTED, LIABILITY IS NOT ACCEPTED. THE DETAILS AND CONTENT IS PROVIDED FOR CAR BUYERS AND INDIVIDUALS AND BUSINESS SEEKING FINANCE PURELY AS GENERAL INFORMATION. THIS IS NOT PROVIDED AS THE ONLY SOURCE OF FINANCIAL INFORMATION. ANYONE THAT CONSIDERS THAT NEED FINANCIAL ADVICE ABOUT THEIR SPECIFIC REQUIREMENTS SHOULD SEEK THEIR FINANCIAL ADVISOR.