ATO to target luxury car incentives

Changes to the Luxury Car Tax (LCT), following a federal court ruling in December will see some customers pay more for their new vehicles.

New legislation introduced yesterday (May 1) means that special deals or factory-backed incentives will also attract LCT, which previously was not the case.

The LCT adds a 33 per cent tax to any new cars that cost more than $60,316, except those that are deemed fuel efficient (using less than 7.0L/100km), which attract the tax at $75,375 and above.

Previously the LCT was only calculated on the price paid by the customer, so the tax on a new $80,000 car that was part of a special $3000-off retail campaign would only be on the $77,000 price paid by the customer.

The new rules mean that the tax will now also apply to the $3000 incentive in this case, so the final price for the customer would be higher by almost $1000.

So instead of getting the car for $77,000, the customer would pay closer to $78,000.

A press statement was issued by the Federal Chamber of Automotive Industries that represents car companies in Australia, explaining the LCT adjustment.

"The change is related to incentives related to the sale of a new vehicle and the amount of LCT calculated on the dutiable value," it reads.

According to government figures, roughly one in 10 new cars sold in Australia attracts the LCT, which is worth almost $500 million in tax revenue per annum.

The LCT was introduced in 2000 and in 2008 the tax rate rose from 25 to 33 per cent.

Several car brands in Australia have openly criticised the LCT since its introduction and the adjustment to the LCT is likely to result in changes to the retail offers from many car companies -- particularly luxury brands.

Special deals and cash-back offers are often provided to fleet buyers and for models in 'run-out' phase, in order to clear stock ahead of new model arrivals.