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What the changes to Luxury Car Tax 2021/22 mean for your car purchase

When buying a new car, most buyers are well aware that the price quoted will include a range of taxes and other government charges such as GST and stamp duty. What not all buyers will be aware of is a tax applied to vehicles over a certain price threshold, Luxury Car Tax (LCT). Luxury Car Tax is a tax applied by the Australian Tax Office (ATO) and was introduced around 20 years ago. The objective at that time was to protect the Australian motor vehicle manufacturing sector from competition from imported brands.

Of course, over the past 20 years, Australia has seen many manufacturers depart the domestic manufacturing scene giving rise to voices that claim the LCT is now out of date and no longer relevant. Unfortunately, if you’re purchasing a vehicle in the $70,000+ range, LCT remains very relevant.

We explain the details around LCT and how the incoming changes may affect your upcoming car purchase. Teaser – some luxury motor vehicle models are set to become more affordable for buyers with changes in the luxury car tax to take effect for the financial year 2021/22.

LCT: Explainer

LCT is a tax on cars over a certain price threshold that are 2 years or less old. The definition of cars includes passenger vehicles for 9 or fewer passengers and a 2 tonne or less load, including limos but excluding motorcycles. LCT is payable by the importer of the vehicle and is usually paid by the dealer or the company importing the vehicles. If an individual imports a vehicle over the threshold themselves, it could be subject to LCT.

The current rate of LCT is 33%. This is calculated on the value of the car including GST over the current LCT threshold. The threshold for fuel-efficient vehicles is different and better. Fuel efficiency is defined as a vehicle with fuel consumption not exceeding 7 litres per 100 klms.

In calculating the amount of LCT payable, some inclusions in the price are excluded. According to the ATO information, they include rego, stamp duty, CTP, any special warranty fees or service plans and some other exemptions such as modifications for drivers with a disability. (Check ATO website for details.) Importantly from our perspective as motor vehicle lenders, LCT does not apply to car finance.

The LCT would be paid by the dealer or importer and included in the overall price tag offered to buyers. It is not adding on as a separate charge at the consumer level. But as LCT affects the overall purchase price of the car and hence your total motor vehicle finance, it may be worth including in your buying considerations.

To read more about LCT, click here.

Upcoming Changes to Luxury Car Tax

Pleasingly for buyers in this market category, LCT has changed over the years in a positive direction. Rather than in actual percentage terms, the threshold has changed. Over the past few financial years, the ATO has increased the threshold marginally for what the value of vehicles subject to LCT. That means, fewer vehicles are subject to LCT meaning the buying price of these models is reduced.

For the financial year 2020/21 the LCT thresholds were $68,740 for non-fuel efficient vehicles and $77,565 for fuel-efficient vehicles.

From 1 July 2021, those thresholds will rise to $69,152 and $79,659 respectively.

There are exemptions for certain buyer categories and those interested can check the ATO website for specifics.

Impact on Buying Decisions

If you’re averse to paying too much or too many taxes, when it comes to avoiding paying LCT you’re going to have to select a less expensive vehicle. Set your sights on a sub $70,000 model of the make you’re interested in. Of ensuring you select a sub $80,000ish in the fuel-efficient category.

If buying an EV, there are additional incentives through changes announced to stamp duty by some state governments in their 2021/22 budgets.

A handy reference guide to pricing is www.redbook.com.au which lists current vehicle pricing. Using their filters you should be able to narrow down your search to suit your price range. Alternatively, head into your preferred dealership and have a conversation around which models are LCT-exempt.

Car Finance Considerations

As mentioned above, LCT does not have an impact on such aspects of a motor vehicle finance package. We provide personal car loans as well as commercial vehicle finance based on the dealer or seller invoice or the loan amount requested by our customer.

We offer no deposit finance which can include the total purchase price of the vehicle which would have already had LCT incorporated into the pricing.

To work out estimated loan repayments on any number of vehicles, simply use our car loan calculators. You just enter the purchase price, the terms you prefer, our current interest rate on either a Secured Car Loan or for business buyers your choice of Chattel Mortgage, CHP or Leasing. The calculator then displays the estimated repayments for that loan on that vehicle.

Enter details for vehicles above and below the LCT threshold to quickly see the difference in loan repayments and total interest payable to assist with your buying decision.

The good news, despite having to pay LCT on many prestige luxury vehicles, we maintain cheap car loan interest rates across our portfolio. So by engaging Jade as your lender, you’ll at least know you won’t be overpaying on interest.

Contact 1300 000 003 for a finance quote on all types of motor vehicles.

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 OWN FINANCIAL ADVISOR.

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