The Luxury Car Tax (LCT) is an Australian tax applied to vehicles exceeding specific value thresholds.
As of the 2024–25 financial year, LCT is levied at 33% on the GST-inclusive value of a car exceeding $80,567, or $91,387 for fuel-efficient vehicles with a combined fuel consumption not exceeding seven litres per 100 kilometres.
As a business, it’s crucial to understand your obligations and avoid common pitfalls to ensure compliance and maintain your reputation.
When to Quote Your ABN
Businesses can defer LCT by quoting their Australian Business Number (ABN) to the dealer or wholesaler, a process known as ‘quoting.’
You can quote when:
- You have a valid ABN and are registered for Goods and Services Tax (GST).
- You’re a luxury car dealer purchasing the car solely as trading stock.
- You’re conducting research and development on the car for the manufacturer.
- You intend to make a GST-free export.
If you’re a car dealer, ensure the ABN quoted is valid and registered for GST, and retain a copy of the purchaser’s motor dealer licence or other entitlement to trade in cars. If you’re unsure about the legitimacy of the purchaser, consider limiting your risk by not accepting the quote.
Record-Keeping Requirements
Maintaining accurate and current records is essential to support your LCT claims and any adjustments on your Business Activity Statement (BAS). Required documentation includes:
- Proof of conducting an enterprise involving trade in luxury cars.
- Details of how you acquired or imported the cars and evidence of payment.
- Records of the car’s usage while in your possession.
- Information on how you’ve sold, exported, or otherwise resupplied the car.
Additional records may be necessary to substantiate LCT claims.
Reporting and Claiming Correctly
To ensure compliance, avoid these common errors when reporting or claiming LCT:
- Using incorrect formulas or LCT thresholds.
- Failing to report and pay LCT on your BAS immediately after selling the car or using it for a non-quotable purpose.
- Claiming GST credits for both GST and LCT when you’re not entitled to claim the full amounts.
You need to report LCT on your BAS, using the same tax period as you do for GST reporting. Refer to the LCT rates to make sure you’re using the right ones, or speak with your tax advisor.
Compliance and Penalties
The Australian Taxation Office (ATO) focuses on issues and behaviours of those who actively try to avoid their LCT obligations. Some of the behaviours they are most concerned about include:
- Resellers who undercut legitimate dealers on price by evading LCT and GST on luxury car sales.
- Individuals who attempt to pass off private luxury car purchases as a trading enterprise to fraudulently access LCT and GST benefits.
- Dealers or resellers falsely asserting that luxury cars are being held solely as trading stock when the cars are being used frequently for ‘extended’ test drives, personal use, or informally leased or sold.
- Organised criminal networks infiltrating the luxury car industry to launder money, hide assets, and commit tax fraud, including LCT fraud.
Engaging in or facilitating these behaviours can lead to penalties or criminal prosecution.
What You Should Do
If you have entered into similar arrangements or are aware of others that have, consider:
- Applying for a private ruling.
- Seeking independent advice regarding the legal and tax consequences of your arrangement.
- Making a voluntary disclosure to reduce penalties that may apply.
Penalties will be significantly reduced if you contact the ATO and make a voluntary disclosure, especially if you do so before they notify you of an examination of your tax affairs.
Understanding and adhering to LCT obligations is vital for businesses dealing in luxury vehicles. Ensure you quote your ABN appropriately, maintain thorough records, report accurately, and remain compliant to avoid penalties. Seek further advice from your tax advisor if clarification is required.
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