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CONTENTS
Passage History
Purpose
Background
Main Provisions
Concluding Comments
Endnotes
Contact Officer and Copyright Details
A New Tax System (Luxury Car Tax
Imposition-General) Bill 1999
Date Introduced: 24 March 1999
House: House of Representatives
Portfolio: Treasury
Commencement: 1 July 2000
This Bill will
impose the tax that is payable under the A New Tax System (Luxury
Car Tax) Act 1999, but only in so far as it is neither a duty of
customs nor a duty of excise.
1.0 Recent History
On 13 August 1998 the Government released
details of its long awaited tax reform plan, embodied in the
publication entitled Tax Reform: not a new tax, a new tax
system (Tax Reform Plan).
A key aspect of the Tax Reform Plan is the
introduction of a Goods and Services Tax (GST) to replace the
current Wholesale Sales Tax (WST), as well as a number of State
indirect taxes. The Tax Reform Plan as a whole formed a major
component of the Government's policy platform leading up to the
Federal election held on 3 October 1998.
Following the Governments re-election, a package
of 16 Bills were introduced on 2 December 1998 to implement a GST
as well as some of the other tax reform measures contained in its
Tax Reform Plan. Six of those Bills introduce the GST, namely:
-
- A New Tax System (Goods and Services Tax) Bill 1998
-
- A New Tax System (Goods and Services Tax Administration) Bill
1998
-
- A New Tax System (Goods and Services Tax Transition) Bill
1998
-
- A New Tax System (Goods and Services Tax Imposition-General)
Bill 1998
-
- A New Tax System (Goods and Services Tax Imposition-Customs)
Bill 1998, and
-
- A New Tax System (Goods and Services Tax Imposition-Excise)
Bill 1998.
In addition to introducing the GST, the Tax
Reform Plan also proposed to introduce a Luxury Car Tax (LCT). On
24 March 1999 a package of six Bills introduced the LCT,
namely:
-
- A New Tax System (Luxury Car Tax) Bill 1999
-
- A New Tax System (Indirect Tax Administration) Bill 1999
-
- A New Tax System (Wine Equalisation Tax and Luxury Car Tax
Transition) Bill 1999
-
- A New Tax System (Luxury Car Tax Imposition-General) Bill
1999
-
- A New Tax System (Luxury Car Tax Imposition-Customs) Bill 1999,
and
-
- A New Tax System (Luxury Car Tax Imposition-Excise) Bill
1999.
2.0 GST
Overview
The GST proposed is a broad-based indirect tax
on final private consumption in Australia. It will tax the
consumption of most goods, services and any other things, including
things imported into Australia, but not to consumption outside
Australia. The GST rate proposed is 10%.
The GST is based on the Value Added Tax (VAT)
system, which has been adopted by nearly all OECD countries and
more than 80 others around the world. The GST concept of taxing
final private consumption is achieved by:
-
- imposing tax on supplies made by entities registered for GST
purposes, and
-
- allowing those entities to claim a full credit for any GST they
have paid on business purchases (or inputs). Such credits will be
known as input tax credits.
Consistent with other GST and VAT regimes, there
will be two types of non-taxable supplies, 'GST-free' and 'input
taxed', known in most other countries with a GST or VAT as 'zero
rated' and 'exempt' respectively.
GST-free supplies will not be taxed and input
tax credits will be allowed on things acquired to make the supply.
The main activities that will be GST-free include exports, certain
expenditure by tourists, health and medical care, education,
childcare, charitable activities and religious services.
Input taxed supplies will similarly not be
taxed, however no input tax credits will be allowed on things
acquired to make the supply. The main activities that will be input
taxed are financial services and residential rents.
The main Bill implementing the GST is the A New
Tax System (Goods and Services Tax) Bill 1998 (GST Bill).
3.0 Luxury Car Tax
Overview
As a result of the introduction of the GST
together with the abolition of WST, motor cars in general would
fall in price.
Luxury cars, however, would fall in price even
more dramatically as they are currently subject to 45% WST on the
value above a 'luxury' threshold, as opposed to 22% WST which
applies generally. The luxury threshold is specified in Schedule 6
of the Sales Tax (Exemptions and Classifications) Act 1992
as being a taxable value more than 67.1% of the motor vehicle
depreciation limit, currently $55,134.
WST is assessed on a taxable value known as the
uniform taxable value (UTV), which is a set percentage approved by
the Commissioner of Taxation for use in the motor vehicle industry.
The UTV is 77.75% of the tax-exclusive recommended retail selling
price. The UTV is also relevant for the purposes of the luxury
threshold test specified in Schedule 6 of the Sales Tax
(Exemptions and Classifications) Act 1992.
The resultant effect of the above WST rules is
that luxury motor cars for WST purposes are, broadly, those cars
with a recommended retail selling price in excess of $47,581
WST-exclusive, or $55,720 WST-inclusive.
The Government does not believe a dramatic price
reduction for luxury cars 'is appropriate'. To ensure, therefore,
that luxury cars only fall by about the same amount as a car just
below the proposed luxury car tax threshold, the Government
proposes to introduce the luxury car tax.(1)
The Rate of LCT is to be 25% calculated on the
value of the car above a LCT threshold.
The LCT threshold proposed is a GST-inclusive
value equal to the car depreciation limit that applies under
Subdivision 42-B of the Income Tax Assessment Act 1997 for
the year in which the supply of the car occurs. As mentioned
earlier, the car depreciation limit for the 1998-99 financial year
is $55,134. This is a departure from that proposed in the Tax
Reform Plan, which stated that the LCT threshold would be equal to
a GST-inclusive value of $60,000(2).
The LCT proposed is a single stage tax that will
be imposed on taxable supplies and importations of luxury cars. It
will be in addition to any GST that may be payable, but not levied
on the GST-inclusive price. It will be levied on the value of the
car after GST has been excluded.
The payment of LCT is to be incorporated into
the net amount payable under the GST system, or in the case of
importations, paid with customs duty. A system of quoting is
designed to avoid LCT becoming payable until the luxury car is sold
or imported at the retail level. Generally, a recipient will be
entitled to quote if the car supplied to them is expected to be
held solely as trading stock.
Unlike the GST, an entity that buys a luxury car
in the course or furtherance of an enterprise will not be entitled
to an input tax credit for any LCT payable.
4.0 Constitutional Restrictions
with Respect to Laws Imposing Taxation
The Commonwealth Parliament derives its powers
from the Commonwealth of Australia Constitution Act. Its
power with respect to taxation is found in section 51, Placitum
(ii), which states that the 'Parliament shall, subject to this
constitution, have power to make laws for the peace, order, and
good government of the Commonwealth with respect to: - (ii)
Taxation; but so as not to discriminate between States or parts of
States.'
Other provisions in the Constitution affect the
power to tax, including section 55. Section 55 reads 'Laws imposing
taxation shall deal only with the imposition of taxation, and any
provision therein dealing with any other material shall be of no
effect.'
Accordingly the convention of separate Acts for
those dealing with the subject of tax, its assessment and
collection and those imposing the tax, is actually a legislative
requirement pursuant to section 55 of the
Constitution.
Section 55 continues to state that 'Laws
imposing taxation, except laws imposing duties of customs or of
excise, shall deal with the subject of taxation only; but laws
imposing duties of customs shall deal with duties of customs only,
and laws imposing duties of excise shall deal with duties of excise
only.'
Thus it is necessary for laws imposing the LCT
to be separated into three Acts. One Act imposing taxation, a
second Act imposing duties of customs and a third Act imposing
duties of excise.
The following bills will impose the LCT if
enacted:
-
- A New Tax System (Luxury Car Tax Imposition-General) Bill
1999
-
- A New Tax System (Luxury Car Tax Imposition-Customs) Bill 1999,
and
-
- A New Tax System (Luxury Car Tax Imposition-Excise) Bill
1999.
1.0 Imposition
Subclause 3(1) states that the
tax that is payable under the A New Tax System (Luxury Car Tax) Act
1999 is imposed by this section under the name of luxury car
tax.(3)
Subclause 3(2) will impose LCT
only so far as it is neither a duty of customs nor a duty of excise
within the meaning of section 55 of the Constitution.
Please refer to the discussion in the Background section above at
paragraph 4.0 for further information in relation to this
issue.
2.0 Rate
Clause 4 will impose the rate
of LCT payable under the A New Tax System (Luxury Car Tax) Bill
1999 at 25%.
3.0 State
Property
Clause 5 will ensure that the
legislation imposing the LCT does not apply to property of any kind
belonging to a State.(4) The Territories are not included within
the ambit of this section. Please refer to paragraph 1.0 in the
Concluding Comments section below for further discussion on this
topic.
1.0 Taxing Property Belonging to
a State
The Constitution will not protect the
States from a LCT on transactions which affect its property unless
the tax could truly be characterised as a tax on the ownership or
holding of property
Section 114 of the Constitution(5) is
one of the few sections in the Constitution defining the
nature of intergovernmental immunities. It prevents the
Commonwealth Parliament from legislating so as to tax property of
any kind belonging to a State. The definition of a 'State' does not
include a Territory.(6)
Judicial decisions appear to have adopted a
narrow interpretation of section 114 so as only to protect the
States against a tax imposed by reason of the ownership or holding
of property. (7)
This approach has led the High Court to decide,
for example, that section 114 did not prevent the Commonwealth from
taxing car and housing fringe benefits provided by the State to its
employees. This is because section 114 'protects the property of a
State from a tax on the ownership or holding of property but it
does not protect the State from a tax on transactions which affect
its property, unless the tax can truly be characterised as a tax on
the ownership or holding of property.'(8)
Thus section 114 will not afford the States
protection from a LCT in relation to every form of transaction to
which a State is a party. It is restricted to prohibiting the
imposition of a luxury car tax where such a tax is characterised as
one on the ownership or holding of property.
2.0 Rationale for Luxury Car Tax
Questionable
One of the problems with the current WST system
identified in the Tax Reform Plan was the multiple rate structure;
exempt or one of six different tax rates.(9) The goal, with respect
to indirect taxes, was stated to be a system that taxes a broad
range of goods and services at a single low rate.(10) One of the
advantages of the GST was that it would apply only one rate to
taxable goods and services.(11)
The indirect tax system proposed includes the
GST, the LCT and a Wine Equalisation Tax, introduced at the same
time as the LCT. Together, there will be three different tax rates,
GST-free supplies and input taxed supplies.
It could be argued that differential rates of
tax have potentially distortionary effects, as well as compromise
administrative simplicity leading to increased compliance
costs.
Furthermore, it could be argued that it is wrong
to differentiate between persons on the basis of preferences, as
results with multiple rates. In fact, Fact Sheet No: 201 implies
that multiple rates are unfair.(12)
3.0 Naming of Luxury Car Tax
Bills
Presumably, the titles of the LCT Bills have
been used to make it easier for the Parliament to identify those
which form part of the Tax Reform Plan package. From a practical
perspective however, the titles appear to be unnecessarily lengthy
and indeed cumbersome. The words 'A New Tax System' could be
deleted from each title without affecting the relevance of the
title to the particular piece of legislation.
1. Costello, P., MP, 1998, Tax Reform: not a
new tax, a new tax system, at p. 89; Explanatory
Memorandum to the A New Tax System (Luxury Car Tax) Bill 1999,
at paragraph 1.22 and 5.3.
2. Costello, P., MP, 1998, Tax Reform: not a new
tax, a new tax system, at p. 89.
3. Luxury car tax is defined in the A New Tax
System (Luxury Car Tax) Bill 1999 to mean tax that is payable under
the luxury car tax law and imposed as luxury car tax by any of
these:
-
- the A New Tax System (Luxury Car Tax Imposition-General) Act
1999; or
- the A New Tax System (Luxury Car Tax Imposition-Customs) Act
1999;or
- the A New Tax System (Luxury Car Tax Imposition-Excise) Act
1999.
Luxury car tax law is defined in the A
New Tax System (Luxury Car Tax) Bill 1999 to mean:
-
- this Act; and
- any Act that imposes luxury car tax; and
- the A New Tax System (Wine Equalisation Tax and Luxury Car
Tax Transition) Act 1999; and
- the Taxation Administration Act 1953, so far as it
relates to any Act covered by paragraphs (a) to (c); and
- any other Act, so far as it relates to any Act covered by
paragraphs (a) to (d) (or to so much of that Act as is covered);
and
- regulations under any Act, so far as they relate to any Act
covered by paragraphs (a) to (e) (or to so much of that Act as is
covered).
4. Property of any kind belonging to a
State has the same meaning as attributed to it by judicial
interpretation in respect of section 114 of the
Constitution. It is not actually defined in section
114.
5. Section 114: A State shall not,
without the consent of the Parliament of the Commonwealth, raise or
maintain any naval or military force, or impose any tax on property
of any kind belonging to the Commonwealth, nor shall the
Commonwealth impose any tax on property of any kind belonging to a
State.
6. The Constitution, section 6
7. South Australia v Commonwealth
(1992) 174 CLR 235, at p.248.
8. Queensland v Commonwealth (1987) 162
CLR 74, at p.98.
9. Costello, P., MP, 1998, Tax Reform: not a
new tax, a new tax system, at p. 72.
10. Ibid., p.77.
11. Ibid., p.80.
12. Costello, P., MP, 1998, Tax Reform: not
a new tax, a new tax system, Fact Sheet No: 201.
Simon Lang
16 April 1999
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