Why luxury cars cost too much in Australia

[Express]

The breakdown: Luxury Car Tax



Five things you need to know about luxury car prices in Australia.



Drive
David McCowen
3 June 2017




The Federal Government pockets more cash than Porsche Cars Australia from the sale of a 911. Photo: Supplied



What's going on?

High-end luxury cars cost more in Australia than many other places.

Part of that is because we're a long way from manufacturing centres in Europe, Japan and the Americas, because our cars are made in a less common right-hand-drive layout, and because luxury cars have a higher than usual standard specification here.

But those factors are much less significant than the Federal Government's luxury car tax.

Australian motorists pay a significant tax on new vehicles priced above a threshold that changes from year to year.

The Turnbull Government announced this week that the luxury car tax (LCT) is here to stay for another 12 months, and that the threshold has shifted slightly, climbing to $65,094 for the 2017-18 financial year for cars that use more than 7L/100km, and remaining steady at $75,526 for cars that use less fuel than that.

The tax is imposed at a rate of 33 per cent above the threshold - so a fuel efficient car that costs $175,000 (pre-tax) requires the 33 per cent levy to be paid on around $100,000, resulting in $33,000 in LCT that pushes the car's retail price well beyond the $200,000 mark.

LCT applies in addition to other measures such as a 5 per cent import duty and 10 per cent GST, so a model like BMW's flagship 7-Series, which costs $305,461 before LCT and GST are factored in, comes in at $419,000 plus on-road costs.

The LCT threshold for efficient vehicles has increased by just $526 since 2009-10, whereas the threshold for regular cars has climbed by $7914 (up from $57,180) in the same period.

Government agencies are considering revisions to the measure, though that seems unlikely in the short term as the government continues to count on billions of dollars in LCT revenue tabled to arrive in years to come.

Few things unite the car industry like its opposition to LCT, which has been characterised as an unfair and discriminatory measure.


Why the big deal?

Australians buy a lot of cars, particularly luxury cars, which continue to grow in popularity.

One of the problems with LCT is that it is a rather blunt measurement of luxury. The most popular car subject to the tax is Toyota's LandCruiser, a vehicle that costs a fair wedge of money not because it pampers occupants, but because it is capable of taking them where they need to go. In many circumstances, that could be a rural environment or work site rendering the car more a necessity than a luxury.

The tax was introduced in 2000 partly to protect Australia's automotive manufacturing industry, which comes to a halt in October. But there's no longer a need to dissuade people from buy a BMW in favour of a Ford Falcon, which has lead to calls for it to be abolished.

The Department of Infrastructure and Regional Development has also criticised the tax for favouring diesel vehicles that produce more C02 and harmful particulates than equivalent petrol models per litre of fuel burned. Car companies say it is stifling the take-up of safer and more efficient models that cost more than regular cars as, unlike many other countries, Australia offers little incentive for low-emission vehicles.


Who cares?

You should, as LCT makes many cars more expensive than they need to be.

The treasury does, as LCT is a lucrative measure for the Federal Government, reaping $650 million in revenue in the 2016-17 financial year.

Government agencies do, as revisions to the tax are being considered as part of tweaks to taxation and environmental measures, and car companies do, as the measure no doubt has an effect on sales.


Say what?

Glen Sealey, Maserati's Australian general manager isn't a fan of the tax:

"Clearly it should be abolished."

Porsche spokesman Paul Ellis gave insight into the matter in 2014...

"The Federal Government gets more revenue than Porsche does as the importer and wholesaler, and what our dealers do as retailers, combined. We do all the work and they get the profit."

... and Mercedes-Benz spokesman David McCarthy has opposed the tax for nearly 10 years:

"Despite the opportunity to tax other luxury goods such as diamond rings, executive jets, golf club memberships and luxury cruising boats, the government has decided for some reason to punish and single out the car industry."

Former Liberal MP Joe Hockey was against the measure in 2008, before he became treasurer (and left the LCT in place).

"A LandCruiser in regional rural Australia is not a luxury vehicle, it's fair dinkum. We believe that this one is bad policy and we're opposing it."

AAA chief executive Michael Bradley:

"With local manufacturing coming to an end in 2017 it is only fair that the date be named to remove vehicle import tariffs and the luxury car tax. Nine out of ten new vehicles sold in Australia are already fully imported so there is no longer any justification to maintain these taxes."

Independent Senator Nick Xenophon spoke with Drive about LCT ahead of the 2016 election.

"It hasn't brought in the revenue that was anticipated, and I'd rather see a change to the Luxury Car Tax than the parallel import changes."


What next?

The Government had been considering a parallel imports scheme intended to reduce the cost of new cars by allowing individual motorists to source cars directly from overseas, cutting Australian dealers and distributors out of the loop. But things have gone quiet on that front.

Changes to the LCT are under consideration as part of an ongoing tax review. It's possible that the LCT could be abolished in favour of another model more closely related to emissions and efficiency, as used in the UK. The DIRD says "Governments could encourage improvements in vehicle efficiency through changes to the tax treatment of vehicles and road user charges", adding increased incentive for low or zero-emissions cars.

Another proposal surrounds pay-as-you-go road taxes that could take the place of registration or stamp duty fees, a move that could have a flow-on effect for the LCT.

The luxury car tax looks set to stay in place for now, particularly as the government is budgeting on receiving $2.7 billion in LCT revenue between July 2017 and June 2021.


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http://www.drive.com.au/motor-news/t...03-gwjmpt.html



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[Bossxr8]

As if the government will axe that little earner. It fills their coffers nicely.

[Sprintey]

Imported goods have been this way since the Rum Corps... Multi-century rip off

[Polyal]

Wonder how it all plays out with leasing etc, im no accountant but Id wager a high portion of all these cars are being paid pre tax? Spins my head thinking about it all but high wage earners are generally looking at ways of lowering taxable income so a large pre tax car repayment isnt so bad?

Just makes life annoying for those in the middle.

[Ford17]

Taxes are rarely abolished, and when they are it's usually because they're being replaced with a new tax.

[wackyv8]

silly article . why would they abolish a tax on imported cars? especially when the top down drive them ,(car C01 rego - our Prime minister's appointed BMW) at the taxpayers expense. we let them bugger us a long time ago.

[DK30RB]

For the record, here is the breakdown on fees i paid last year when i bought my new Landcruiser........Its crazy how much the Gov get.....

Final price $114,000

Vehicle $87,122
Rego $703
CTP $547
Plates $43
Stamp Duty $4510
GST $8891
Lux Car Tax $10,387

Dealer delivery $1795 !!! (for a car wash)

So thats $23,788 in taxes.(Stamp Duty, GST, and Lux Car Tax) (not including rego CTP, plates).

Granted i was able to grab back some of the GST but people buying privately don't have that option. Crazy.....

[Sioso]

Originally Posted by DK30RB

For the record, here is the breakdown on fees i paid last year when i bought my new Landcruiser........Its crazy how much the Gov get.....

Final price $114,000

Vehicle $87,122
Rego $703
CTP $547
Plates $43
Stamp Duty $4510
GST $8891
Lux Car Tax $10,387

Dealer delivery $1795 !!! (for a car wash)

So thats $23,788 in taxes.(Stamp Duty, GST, and Lux Car Tax) (not including rego CTP, plates).

Granted i was able to grab back some of the GST but people buying privately don't have that option. Crazy.....

And then they'll take 30% of any profit made by the dealer.

They have to charge such huge amounts because they operate so inefficiently.

[Blue_XR]

If the government reduced the LCT, would that mean that second hand prices of the luxury brands would drastically fall as well? All of a sudden new cars would seem much cheaper.

[Tassie f100]

Well I understood the LCT was a form of protectialism for our own top end cars eg Fairlane/LTD and Caprice Calais etc.Now they are no longer being produced there is no need to hit buyers with any excess tax.So the only tax should be the regulation 10% GST

[Itsme]

Originally Posted by Tassie f100

Well I understood the LCT was a form of protectialism for our own top end cars eg Fairlane/LTD and Caprice Calais etc.Now they are no longer being produced there is no need to hit buyers with any excess tax.So the only tax should be the regulation 10% GST

Good point but problem is no government likes to remove taxes regardless of circumstances.

[Spammy]

Originally Posted by Polyal

Wonder how it all plays out with leasing etc, im no accountant but Id wager a high portion of all these cars are being paid pre tax? Spins my head thinking about it all but high wage earners are generally looking at ways of lowering taxable income so a large pre tax car repayment isnt so bad?

Just makes life annoying for those in the middle.

FBT has been around since 1986, there is no free lunch with leasing a car.

You can save a little bit if you do enough kms but its really about using somebody elses money (the leasing company) to fund the car becaause you have better places to use your own money eg shares, business, property etc etc

[Stefan]

We pay alot of tax....well I'll be...

[last fairlane]

Reading that article about abolishing rego and having a pay as you go
took me back to 1974 when the PM Gough Whitlam suggested puting two cents a gallon (about 1/2 a cent a litre) onto petrol and abolish rego
well he was shot down in flames mostly by the farmers and the Libs

[vztrt]

Originally Posted by Polyal

Wonder how it all plays out with leasing etc, im no accountant but Id wager a high portion of all these cars are being paid pre tax? Spins my head thinking about it all but high wage earners are generally looking at ways of lowering taxable income so a large pre tax car repayment isnt so bad?

Just makes life annoying for those in the middle.

Lease cars make no sense on low wages. I know people that needed cars that were 90k+ for their tax dodge.

[Big_Damo]

Drop this tax they will raise the money elsewhere so you decide happy to happy luxury car tax or increase tax on all cars same same except I ain't paying luxury car tax at the moment

[sr71]

Originally Posted by Blue_XR

If the government reduced the LCT, would that mean that second hand prices of the luxury brands would drastically fall as well? All of a sudden new cars would seem much cheaper.

Yep, it'd lower values of used market. Especially cars only a year or two old. It's similar to when EOFY and Last Year's Build Plate sales happen. $5-8k discounts take buyers from the used car market.


I thought the Parallel Import Scheme was going ahead (although I haven't followed it lately). Checking out Motors.co.uk prices, and compare prices on Porsche. You could import a 911, for what it would cost to buy a 718 here (Imported by Porsche Australia).
Buying will pretty much be restricted to UK and Japan cars(RHD). And likely to be difficult to Finance. So access to cash in the bank, up front.

Another factor to our high prices is our Market Share. Using Porshe 911, again. The USA buys a large amount per year, compared to Australia. So they get a bulk rate/discount.

I think some of these articles are just Smoke Screens by the Luxury Importers, blaming government for high RRP. They don't want the Parrallel Import Scheme. The top end of town still has plenty to spend on Luxury cars. And the Importers/Dealerships profit from Sales and In-house Finance.

LCT= First World Problem

[paulb351]

Originally Posted by Polyal

Wonder how it all plays out with leasing etc, im no accountant but Id wager a high portion of all these cars are being paid pre tax? Spins my head thinking about it all but high wage earners are generally looking at ways of lowering taxable income so a large pre tax car repayment isnt so bad?

Just makes life annoying for those in the middle.

Changes to FBT in 2011 (to increase the rate applied to motor vehicles using the statutory method of tax calculation of the value using 20% and removing the linkage with kilometres travelled ) means that leasing is dead in the water, almost killed the novated leasing industry overnight when the rules were changed in 2011.

Think of leasing as a (complicated) alternative to taking out a personal loan, or buying something on credit card. The pre-tax/post-tax thing was a benefit 20 years ago but now it isn't worth the effort and not competitive with other forms of vehicle financing.

[SensationFG8]

Originally Posted by paulb351

Changes to FBT in 2011 (to increase the rate applied to motor vehicles using the statutory method of tax calculation of the value using 20% and removing the linkage with kilometres travelled ) means that leasing is dead in the water, almost killed the novated leasing industry overnight when the rules were changed in 2011.

Think of leasing as a (complicated) alternative to taking out a personal loan, or buying something on credit card. The pre-tax/post-tax thing was a benefit 20 years ago but now it isn't worth the effort and not competitive with other forms of vehicle financing.

You forgot you dont pay GST on any of the vehicle purchase and running costs if they are leased. That's a 10% saving on fuel, servicing, tyres everything. The 20% flat rate still saves some people 25% if they're in the top marginal rate.

As far as I can see leasing is still a viable option for people with the correct financial conditions. It's just not as attractive as it once was when you could get it down to 11 and 7%.

I would say the real killer is the amount of low interest finance that's going around the car industry at the moment. I think novated lease companies still run quite high interest rates on the loan component.

[Tassie f100]

Originally Posted by SensationFG8

You forgot you dont pay GST on any of the vehicle purchase and running costs if they are leased. That's a 10% saving on fuel, servicing, tyres everything. The 20% flat rate still saves some people 25% if they're in the top marginal rate.

As far as I can see leasing is still a viable option for people with the correct financial conditions. It's just not as attractive as it once was when you could get it down to 11 and 7%.

I would say the real killer is the amount of low interest finance that's going around the car industry at the moment. I think novated lease companies still run quite high interest rates on the loan component.

GST exemption only applicable to business use.Privateers cannot claim exemption.Users must have an ABN and be GST registered.

[SensationFG8]

Please read

https://www.strattonfinance.com.au/n...st-effect.aspx

http://www.sgfleet.com/au/salary-pac...oyee-benefits/

https://racvsalarysolutions.com.au/n...novated-lease/

[Tassie f100]

Your point is???

[SensationFG8]

Originally Posted by Tassie f100

Your point is???

Sorry do I need to extract the point for you from those? Each link directly contradicts your assertion that you dont get GST savings in a novated lease.

GST savings

When your vehicle is purchased, the finance company claims an Input Tax Credit (ITC) on the GST contained in the purchase price, up to the current Luxury Car Tax Limit (a maximum ITC of one eleventh of the Luxury Car Tax Limit). As the financier is able to claim this ITC, your lease payments are calculated on the purchase price minus the amount of this credit.

In addition, most employers are also able to claim Input Tax Credits on the GST applied to the lease payments and other vehicle-related expenses. Additional savings resulting from these credits claimed by your employer may also apply to your Novated Lease arrangements.

GST savings

GST savings
Save 10% on the purchase price of your vehicle, as well as:

Fuel purchases
Any servicing costs, parts or labour
Insurance
Tyres

GST savings

GST savings – Under a Novated Lease you save GST on the purchase price of a new car. Plus all finance costs and most of the running costs are exempt from GST.

[Tassie f100]

You are correct from a business aspect BUT as a privateer I cannot get a lease vehicle GST free.

[SensationFG8]

How is that relevant, we were talking about novated leasing...

[Tassie f100]

End of pointless discussion!!

[M&Ms]

Go to countries like Malaysia where they pay 300% import tariffs, and you'll see we're not too bad in comparison. Imagine having to pay $250k for a Nissan 370Z.

[FG50T]

Or move to America and pay $AUD68k for a BMW M2 or $AUD98k for a C63 S Coupe

[SensationFG8]

Originally Posted by Tassie f100

End of pointless discussion!!

[Pepscobra]

Seems there is no reason to abolish this tax.
Not like the new car market is struggling and sales of luxury cars are at market highs.