Luxury Car Tax Should Be Scrapped


The Australian Automobile Association (AAA) – representing the state and territory motoring clubs and their more than 6 million members – today joined calls for the Luxury Car Tax (LCT) to be scrapped.

The LCT is a remnant of the old tax system and it creates a number of distortions. For example, the LCT acts as a disincentive to purchase a so-called luxury vehicle which generally has superior safety features (such as passenger and side airbags) and enhanced environmental performance.

Since the LCT threshold has not kept pace with changes in car quality, the luxury tax applies at a much lower threshold than it would if car quality improvements were included.

The GST was intended to remove such anomalies in the tax system by applying uniform rates of tax across all goods and services. The introduction of the GST removed the anomaly with respect to most other items, like jewelry, but not for so-called luxury cars which should not be regarded as non-essential.

Given that luxury cars often introduce advanced safety, ITS and environmental technologies, the Government should remove the LCT altogether. The US phased out its LCT over a number of years, ending in 2003. Australia should have already followed suit.

The luxury car tax (LCT) applies to cars whose GST-inclusive value exceeds the LCT threshold ($57,009 for 2005-06). LCT is payable in addition to GST, but it is not payable on the full value of the vehicle – it is payable on 25% of the GST-exclusive value that exceeds the LCT threshold.

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