Bills Digest 66, 2008-09 - Tax Laws Amendment (Luxury Car Tax-Minor Amendments) Bill 2008


Index

Bills Digest no. 66 2008–09

Tax Laws Amendment (Luxury Car Tax–Minor Amendments) Bill 2008

WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

CONTENTS

Passage history
Purpose
Background
Financial implications
Main provisions
Concluding comments
Contact officer & copyright details


Passage history

Date introduced: 25 November 2008

House: House of Representatives

Portfolio: Treasury

Commencement: Sections 1 to 3 of the Bill and Schedule 1, items 1 to 7, Royal Assent. Schedule 1, item 8, 3 October 2008.

Links: The relevant links to the Bill, Explanatory Memorandum and second reading speech can be accessed via BillsNet, which is at http://www.aph.gov.au/bills/. When Bills have been passed they can be found at ComLaw, which is at http://www.comlaw.gov.au/.

Purpose

The Bill amends the A New Tax System (Luxury Car Tax) Act 1999, the Taxation Administration Act 1953, and the Tax Laws Amendment (Luxury Car Tax) Act 2008 to ensure that amendments to the Tax Laws Amendment (Luxury Car Tax) Act passed earlier this year operate as intended .[1] It appears that the current uncertainties relate to the effect of motor vehicle financing arrangements on these amendments.

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Background

Changes to the luxury car tax (LCT) were contained in the Tax Laws Amendment (Luxury Car Tax) Bill 2008 introduced into the Parliament on 26 May 2008.[2]

The Bill was passed by the Senate on 24 September 2008 with amendments which were agreed to by the House of Representatives.[3] The Tax Laws Amendment (Luxury Car Tax) Act 2008 received Royal Assent on 3 October 2008 and commenced on that date.

The basis for the increase in the rate of LCT from 25 per cent to 33 per cent was to protect the market pricing of locally produced vehicles and to re-invest the additional revenue into the local industry.[4]

LCT as set out in the new Act is based on a price threshold and other factors, including fuel consumption, usage and the method of indexing the LCT threshold.

However, since the amendments were passed economic conditions, and in particular the global financial crisis and a manufacturing slowdown, have resulted in a fall in vehicle sales and a revision of the Government s estimates of the amount of revenue that will be raised by the increase in LCT.

Fall in motor vehicle sales

Vehicle sales for October show an 11.4 per cent fall compared to the same month in 2007 (see table below). According to the Federal Chamber of Automotive Industries, the fall reflects the broader slowdown in Australia and globally, as well as reduced access to car finance.[5]

Sales Volumes

Month
October

YTD

Variance +/- Vol. & %

2008

2007

2008

2007

MTH

YTD

MTH

YTD

Passenger

45,978

53,336

508,050

531,102

-7,358

-23,052

-13.8

-4.3

SUV

14,357

17,748

167,300

163,360

-3,391

3,940

-19.1

2.4

Light Commercial

15,686

14,537

158,514

147,211

1,149

11,303

7.9

7.7

Heavy Commercial

3,084

3,668

30,173

29,978

-584

195

-15.9

0.7

Total Market

79,105

89,289

864,037

871,651

-10,184

-7,614

-11.4

-0.9

 

Month

YTD

Variance +/- Vol. & %

Light

9,972

11,150

107,415

105,693

-1,178

1,722

-10.6

1.6

Small

17,339

19,228

196,217

194,416

-1,889

1,801

-9.8

0.9

Medium

7,038

7,952

74,092

76,057

-914

-1,965

-11.5

-2.6

Large

8,956

11,170

99,694

117,778

-2,214

-18,084

-19.8

-15.4

Upper Large

302

762

4,916

7,934

-460

-3,018

-60.4

-38.0

People Movers

1,118

1,283

11,098

13,692

-165

-2,594

-12.9

-18.9

Sports

1,253

1,791

14,618

15,532

-538

-914

-30.0

-5.9

SUV Compact

6,791

8,089

73,037

75,324

-1,298

-2,287

-16.0

-3.0

SUV Medium

5,382

6,839

64,896

61,215

-1,457

3,681

-21.3

6.0

SUV Large

1,001

753

13,169

10,049

248

3,120

32.9

31.0

SUV Luxury

1,183

2,067

16,198

16,772

-884

-574

-42.8

-3.4

x

264

215

2,989

2,067

49

922

22.8

44.6

Vans

1,856

1,686

21,204

16,740

170

4,464

10.1

26.7

PU/CC 4X2

6,261

5,975

62,404

57,597

286

4,807

4.8

8.3

PU/CC 4X4

7,192

6,555

70,874

69,643

637

1,231

9.7

1.8

Trucks 2.5-3.5 GVM

113

106

1,043

1,164

7

-121

6.6

-10.4

Heavy Commercial

3,084

3,668

30,173

29,978

-584

195

-15.9

0.7

Total Market

79,105

89,289

864,037

871,651

-10,184

-7,614

-11.4

-0.9

As a result of falling vehicle sales estimates of LCT revenue have been revised down by $20 million in each of the forward estimates.[6]

Manufacturing slowdown

The fall in vehicle sales coincides with a manufacturing slowdown and a fall in manufacturing employment.

Manufacturing activity, as measured by the Australian Industry Group PricewaterhouseCoopers Performance of Manufacturing Index, fell in October 2008 to 40.4 points, the lowest recorded level since the index began in 1992. This followed four successive months of decline and confirms that manufacturing output is contracting (the 50.0 level in the index separating expansion from contraction).[7]

Critically the fall in manufacturing production reflects a continuing decline in new orders, slower domestic economic growth and cost pressures.[8]

According to the index, manufacturing employment fell in most sectors with wages growth slowing in October.

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Financial implications

According to the Explanatory Memorandum, the Bill will have no financial impact.[9]

Main provisions

Schedule 1 Luxury Car Tax

Items 1 to 4 of Schedule 1 to the Bill propose to clarify the entity bearing the LCT for the purpose of claiming the refund.

Item 5 ensures that the date of operation is from 1 July 2008.

Item 6 amends the Taxation Administration Act 1953 to clarify that LCT refunds are to be paid directly to the claimant.

Item 7 ensures that the date of operation of this amendment is from 1 July 2008.

Item 8 amends the Tax Laws Amendment (Luxury Car Tax) Act 2008 so that contracts for the taxable supply or taxable importation of a vehicle that are entered into before 7.30 pm on 13 May 2008 are relevant for determining the 25 per cent LCT. Item 8 commences immediately after the commencement of the Tax Laws Amendment (Luxury Car Tax) Act 2008 on 3 October 2008.

Concluding comments

The outlook for Australian vehicles sales for 2009 is not strong and the Government has already revised downward its estimate of revenue from the LCT. The recent and rapid depreciation of the Australian dollar will further impact vehicle sales. In certain areas the luxury car market does not seem to be on the decrease, for example hybrid luxury vehicles and SUV diesel models, but this does not necessarily guarantee that the market overall will not be affected by an economic slowdown.



[1] The Hon Chris Bowen MP, Assistant Treasurer, Second Reading Speech: Tax Laws Amendment (Luxury Car Tax Minor Amendments) Bill 2008 , House of Representatives, Debates, 25 November 2008, p. 6.

[2] See: Bills Digest No. 131 2007-08, Tax Laws Amendment (Luxury Car Tax) Bill 2008, http://www.aph.gov.au/library/pubs/bd/2007-08/08bd131.htm

[3] House of Representatives, Debates, 24 September 2008, p. 8404.

[4] Bills Digest No. 131 2007-08, Tax Laws Amendment (Luxury Car Tax) Bill 2008, p. 8.

[5] See Federal Chamber of Automotive Industries, Global Financial Crisis Impacts New Vehicle Sales , 6 November 2008, http://www.fcai.com.au/news/2008/11/192/global-financial-crisis-impacts-new-vehicle-sales-. For October 2008 sales figures, see http://www.fcai.com.au/sales

[6] Senate, Questions Without Notice, 25 November 2008, p. 16.

[7] See Australian Industry Group PricewaterhouseCoopers Performance of Manufacturing Index October 2008, http://pdf.aigroup.asn.au/economics/pmi/7174_PMI_Oct08.pdf

[8] Anecdotal evidence suggests cost pressures from low cost emerging economies. The decision by South Pacific Tyres, a subsidiary of the US Goodyear Tyre and Rubber Co., to close its operations reflected these competitive pressures. See South Pacific Tyres to close at end of the year , The Australian, 26 June 2008, http://www.theaustralian.news.com.au/story/0,25197,23925022-5006785,00.html

[9] Tax Laws Amendment (Luxury Car Tax Minor Amendments) Bill 2008, Explanatory Memorandum, p. 5.

Contact officer and copyright details

Michael Priestley
28 November 2008
Bills Digest Service
Parliamentary Library

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