Bills Digest no. 134 2007–08
A New Tax System (Luxury Car Tax
Imposition—Excise) Amendment 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.
This replaces the 12 June 2008 version of this Digest to
include some technical amendments.
CONTENTS
Passage history
Purpose
Background
Financial implications
Key issues
Main provisions
Concluding comments
Contact officer & copyright details
Passage history
Tax Laws Amendment (Luxury Car Tax) Bill
2008
A New Tax System (Luxury Car
Tax Imposition─General) Amendment Bill
2008
A New Tax System (Luxury Car
Tax Imposition─Customs) Amendment Bill
2008
A New Tax System (Luxury Car
Tax Imposition─Excise) Amendment Bill
2008
Date
introduced: 26 May
2008
House: House of Representatives
Portfolio: Treasury
Commencement:
On Royal Assent. In the
case of measures imposing the luxury car tax, Schedule 1 in
each Bill will commence immediately after the Tax Laws
Amendment (Luxury Car Tax) Act 2008.
Links: The
relevant links to the Bills, 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/.
To amend the A New Tax System
(Luxury Car Tax) Act 1999, A New Tax System (Luxury Car
Tax Imposition General) Act 1999, A New Tax System (Luxury
Car Tax Imposition Customs) Act 1999, and A New Tax System
(Luxury Car Tax Imposition Excise) Act 1999 to increase the
luxury car tax rate from 25 per cent to 33 per cent.
Since 1979, successive governments have imposed a form of
additional tax on luxury cars. The luxury car tax (LCT) was
introduced on 1 July 2000 when the GST was introduced, replacing
the 33 per cent wholesale sales tax which applied to luxury
cars.
A New Tax System (Luxury Car Tax) Act 1999 and
associated Acts imposed LCT on luxury cars whose value exceeded the
LCT threshold. The LCT threshold in 2000-01 was $55,134.
The increase in LCT was announced in the 2008-09 Budget as part
of a package of measures to enhance fairness in the tax system.
Budget Paper No. 1, Statement 5: Revenue states:
Policy decisions since the 2007 PEFO
[Pre-election Economic and Fiscal Outlook] are expected to increase
taxation revenue by $2.4 billion in 2008‑09 and
$19.7 billion over the forward years.
These policy decisions are targeted at
improving productivity and the fairness and integrity of the tax
system. The decisions build on election commitments to defer income
tax cuts for higher income earners and improve funding for ATO
compliance activity which lead to savings of over
$6 billion.
As part of its examination of expenditures, the
Government has decided to abolish or improve the operation of a
range of tax expenditures generating savings of $8.7 billion
by 2011‑12. Together, these measures will contribute to a
fairer tax system, a more productive economy and a fairer return
for the use of Australia's non‑renewable resources.
Luxury car tax
The luxury car tax currently applies at a rate
of 25 per cent for every dollar over the luxury car
threshold; however this rate will increase to 33 per cent
with effect from 1 July 2008. The current luxury car
threshold is $57,123. The threshold is indexed annually using the
motor vehicle purchase component of the CPI, which is composed of
observed price movements for new vehicles sold in Australia. If the
change in the motor vehicle purchase component of the CPI is
negative, the threshold is not reduced.[1]
Some luxury cars whose LCT value exceeds the LCT threshold are
LCT exempt, pursuant to sections 7(10) of the A New Tax System
(Luxury Car Tax) Act 1999 (the Act).
The definition of luxury car in section 25(1) of the Act
excludes certain vehicles, including prescribed emergency vehicles,
motor homes, campervans, commercial vehicles and providing they are
not GST-free, vehicles that are specifically fitted out for
transporting disabled people seated in wheelchairs. The exemptions
to LCT contained in the Act remain unchanged.[2]
According to the Explanatory Memorandum accompanying the Bills,
revenue raised from LCT is estimated at $555 million:
|
2008-09
|
2009-10
|
2010-11
|
2011-12
|
|
$130m
|
$140m
|
$140m
|
$145m
|
The revenue estimates for the financial years 2010-11 and
2011-12 take account of the scheduled tariff reduction on all
imported passenger cars from 10 per cent to 5 percent on 1 January
2010.
Total new vehicle sales for 2007 were 1,049,982 units. This was
a new record for the industry and the first time more than one
million unit sales had been achieved. Total vehicle sales represent
an increase of 87,316 units or 9.1 per cent on volume achieved in
2006. All segments in the market achieved record full year volume
sales in 2007 as detailed in the Table 1 below.
| |
VOLUME
|
DIFFERENCE
|
| |
2006
|
2007
|
VOLUME
|
%
|
|
Passenger
|
598,394
|
637,019
|
38,625
|
6.5
|
|
SUV (4WD)
|
170,847
|
198,176
|
27,329
|
16.0
|
|
Light commercial
|
161,791
|
177,556
|
15,765
|
9.7
|
|
Trucks
|
31,634
|
37,231
|
5,597
|
17.7
|
|
Total
|
962,666
|
1,049,982
|
87,316
|
9.1
|
Source: Australian Automotive Intelligence Yearbook
2008.
Locally produced vehicles accounted for 19.1 per cent of total
vehicle sales in 2007, a fall of 1.8 per cent from the previous
year. Locally produced vehicles, with the exception of the Toyota
Camry, are all 6/8 cylinder vehicles and with the rising price of
fuel and changing consumer preferences for smaller, more fuel
efficient vehicles, continue to lose share. In addition,
traditional buyers have moved to Sports Utility Vehicles (or 4WD
vehicles) away from the passenger car. The market for locally
produced vehicles is sustained primarily by fleet sales which
account for more than 50 per cent of sales.
Another significant factor in the volume reduction of locally
produced vehicles is the strength of the Australian dollar. Since
2002, imported vehicles have either been reduced or remain at their
price levels, while new fuel and safety features have been added to
the vehicles. The price competitiveness of locally produced
vehicles has suffered as a result. While tariffs have remained at
10 per cent since 2005, the strength of the Australian dollar
provides imported vehicles with a price advantage.
In his Second Reading speech introducing the Bills to the House,
the Treasurer provided a summary of the luxury car market in
Australia:
It is estimated that around ten per cent or
around 100,000 of all new car sales made in Australia in 2007 were
subject to luxury car tax. The tax is applied to both imported
vehicles as well as domestically manufactured cars.
Of the top 20 selling cars in 2007, which
covers more than fifty per cent of the car market, less than four
per cent of those sold are subject to luxury car tax. At the lower
end, the increase is in hundreds, not thousands, of dollars. The
increase in the increase in the luxury car tax for the lowest cost
Toyota Prado models are $38 and $98. For the Ford Territory Ghia,
the increase is $496.
Of the five Toyota Tarago models, only one
attracts the luxury car tax. Of the three largest selling people
mover brands, this is the only model that will be impacted by the
tax increase. The price increase is just over one percent.[3]
Around 105,000 new luxury cars are
sold each year. Luxury cars which cost $100,000 or more are
currently taxed around $8000. Under the proposed LCT rate of 33 per
cent, they will be taxed almost $10,500. The LCT applies only to
the portion of the motor vehicle cost above the $57,123
threshold.
It should be noted, however, that
most, if not all, of the increase in LCT on imported luxury cars
will be cancelled out when tariffs on imported passenger motor
vehicles are reduced from 10 per cent to 5 per cent on 1 January
2010. The 5 per cent tariff is an ad valorem tariff and applies to
the motor vehicle cost on entry to Australia.
Table 1 below shows the best selling
luxury cars in 2007 as well as those with significant sales in
preceding years.
|
Segment and Model
|
2000
|
2001
|
2002
|
2003
|
2004
|
2005
|
2006
|
2007
|
|
BMW 3 Series 4 & 6 cyl
|
5,401
|
5,783
|
4,917
|
5,164
|
5,003
|
5,513
|
6,035
|
5,795
|
|
Lexus IS
|
1,498
|
1,211
|
1,639
|
1,407
|
1,419
|
1,809
|
3,381
|
4,096
|
|
Mercedes-Benz C Class
|
2,176
|
4,695
|
6,387
|
5,943
|
5,085
|
4,827
|
3,849
|
4,745
|
|
BMW 5 Series
|
1,374
|
1,664
|
1,281
|
1,235
|
1,982
|
1,750
|
1,813
|
1,552
|
|
Mercedes-Benz E Class
|
1,451
|
1,497
|
1,380
|
2,787
|
2,520
|
2,148
|
1,704
|
2,008
|
|
Chrysler 300C
|
0
|
0
|
0
|
0
|
0
|
363
|
1,864
|
1,645
|
|
Ford Fairlane/LTD
|
3,076
|
2,455
|
2,101
|
2,535
|
2,190
|
1,980
|
1,158
|
1,780
|
|
Holden Statesman/Caprice
|
6,370
|
5,518
|
4,958
|
5,424
|
4,651
|
3,573
|
3,076
|
4,754
|
|
Toyota Tarago
|
2,726
|
2,561
|
2,925
|
2,736
|
2,930
|
2,794
|
3,161
|
3,920
|
|
BMW 3 Series Coupe/Cab
|
1,754
|
2,352
|
2,538
|
2,395
|
1,990
|
1,322
|
1,278
|
2,921
|
|
Mercedes-Benz CLK
|
1,068
|
904
|
774
|
1,952
|
1,954
|
1,717
|
1,459
|
1,228
|
|
Porsche 911
|
251
|
403
|
364
|
417
|
380
|
470
|
389
|
522
|
Source: Australian Automotive Intelligence Yearbook
2008.
Although the government aims to target luxury imported cars,
which are predominantly European, the increase in LCT will impact
on locally produced cars which exceed the $57,123 threshold. Sales
of these models account for a small but significant share of the
luxury car market. The models affected are the Holden Caprice and
Statesman, HSV (Holden Special Vehicles), Ford s Falcon G6E,
Territory Ghia Turbo and FPV (Ford Performance Vehicles).
The increase in LCT will also impact imported hybrid and biofuel
cars, and imported luxury cars with a diesel option, which exceed
the threshold. The models include the Lexus GS450 Hybrid and LS600
Hybrid, the SAAB Vector Bio Power and Volvo S80.
Sales of large 4WD vehicles and luxury 4WD vehicles were more
than 30,000 in 2007.[4] Large 4WD sales were 13,370 and luxury 4WD sales 20,042
in 2007.
Typically, luxury 4WD vehicles are priced between $70,000 and
$100,000. Higher priced 4WD vehicles which include the Toyota
Landcruiser and Nissan Patrol, and luxury 4WD vehicles, such as the
Audi Q7, BMW X5, Range Rover Sport are subject to LCT.
A New Tax System (Luxury Car Tax) Act
1999
The amount of LCT is: Rate x 10/11 x [LCT value - LCT
threshold]
A New Tax System (Luxury Car Tax Imposition General)
Act 1999
A New Tax System (Luxury Car Tax Imposition Customs)
Act 1999
A New Tax System (Luxury Car Tax Imposition Excise)
Act 1999
The 25% rate is omitted and substituted by 33% .
Commentary on LCT
Industry and media commentary on the increase in LCT has been
critical with the Federal Chamber of Automotive Industries
describing the increase as unnecessary and a distortion within the
tax system.[5]
The timing of the increase in LCT coincides with the Bracks
Review of Australia s automotive industry and the government s
efforts to attract R&D for an Australian built hybrid car. As
part of the review, current assistance arrangements are being
examined as are options for continued support to the industry and a
final report is due by 31 July 2008. Funding for the $500 million
Green Car Innovation Fund in the 2008-09 Budget and the increase in
LCT which will raise $555 million foreshadow the government s
intention to take pre-emptive action to support the local industry
by increasing the cost of imported luxury cars and investing in
production of an Australian hybrid car.
Michael Priestley
13 June 2008
Bills Digest Service
Parliamentary Library
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