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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) Bill
1999
Date Introduced: 24 March 1999
House: House of Representatives
Portfolio: Treasury
Commencement: 1 July 2000
This Bill
provides for the determination of liability for, and payment of,
Luxury Car Tax (LCT). In particular, the Bill:
-
- Establishes liability for LCT in respect of the supply or
importation of luxury cars
-
- Provides for a system of quoting, designed to avoid LCT
becoming payable until such time as the car is sold or imported at
the retail level
-
- Provides for the payment of LCT by way of incorporation into
the net amount payable under the Goods and Services Tax (GST)
system, or, paid with customs duty in the case of imported luxury
cars
-
- Makes provision for appropriate adjustments to the net amount
payable under the GST system arising out of circumstances that
occur after the supply or importation of a luxury car, and
-
- Provides a credit for overpaid LCT in circumstances where there
is no entitlement to an adjustment.
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 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, or GST Act
once enacted).
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
to 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 to 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.
1.0 Liability for Luxury Car
Tax
A luxury car is defined in
clause 25-1 to mean a car whose LCT value exceeds
the LCT threshold.
By virtue of the definitions of
car and motor vehicle in
clause 27-1, car would include all passenger cars
including station wagons, all 4-wheel drives, light trucks, motor
homes, campervans and hearses.
Emergency vehicles and certain vehicles used for
transporting disabled people are specifically excluded from the
definition of luxury car by sub-clause
25-1(2).
The luxury car tax threshold is
defined in sub-clause 25-1(3) to mean 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 occurred. The car depreciation limit for the
1998-99 financial year is $55,134.
1.1 Taxable Supplies of Luxury
Cars
Clause 5-5 provides that LCT
will be payable on any taxable supply of a luxury car.
Sub-clause 5-10(1) provides
that a taxable supply of a luxury car will be made
when a luxury car is supplied in the course or furtherance of an
enterprise, the supply is connected with Australia and the supplier
is registered or required to be registered for GST purposes.
The concepts relating to the supply of a luxury
car are based on similar concepts relating to a taxable supply
contained in the GST Bill.
Sub-clause 5-10(2) provides
that a taxable supply of a luxury car will not be made if:
-
- the recipient quotes (explained in paragraph 1.3 below) for the
supply of the car; or
-
- the car is more than 2 years old; or
-
- the car is exported in circumstances where the export is
GST-free under Subdivision 38-D of the GST Act.
1.1.1 Amount of Luxury Car
Tax
The amount of LCT payable will be determined in
accordance with clause 5-15, which provides a
formula for calculating the difference between the LCT value and
the LCT threshold.
The LCT value for the purposes of proposed
Division 5 is essentially the price of the car
including any GST and customs duty payable.
As the LCT value is GST inclusive, the formula
operates to exclude the amount of GST before then applying the LCT
rate of 25% to the difference that exceeds the LCT threshold.
Any amounts of LCT paid on any previous supply
or importation of the car will be deducted and any LCT adjustments
taken into account to arrive at the amount of LCT ultimately
payable.
Special attention is drawn to the
Important note in paragraph 2.50 of the
Explanatory Memorandum (EM), which highlights a consequential
amendment to clause 9-75 of the GST Act that will be necessary.
1.2 Taxable Importations of Luxury
Cars
Clause 7-5 provides that LCT
will be payable on any taxable importation of a luxury car.
Sub-clause 7-10(1) provides
that a taxable importation of a luxury car will be
made when a luxury car is imported into Australia. In contrast with
the taxable supply of a luxury car considered in paragraph 1.1
above, there will be no registration requirement for a taxable
importation, and the importer need not be carrying on an
enterprise.
Sub-clause 7-10(3) provides
that a taxable importation of a luxury car will not be made if:
-
- the recipient quotes (explained in paragraph 1.3 below) for the
importation of the car; or
-
- LCT has already become payable in respect of the car; or
-
- the car is covered by certain items in Schedule 4 to the
Customs Tariff, a summary of which is provided in
paragraph 2.79 of the EM.
1.2.1 Amount of Luxury Car
Tax
The amount of LCT payable will be determined in
accordance with clause 7-15, which provides for
LCT to be calculated in a similar manner to that described in 1.1.1
above, but with some important differences with respect to
determining LCT value.
The LCT value for the purposes of proposed
Division 7 is essentially the customs value of the
car together with the transport and insurance costs of importing
the car, as well as any customs duty and GST payable.
A formula is again used to calculate the
difference between the LCT value and the LCT threshold, the formula
operating so as to exclude the amount of GST before then applying
the LCT rate of 25% to the difference that exceeds the LCT
threshold.
1.3 Quoting
Proposed Division 9 provides
that in certain circumstances, the recipient of a supply or
importation of a luxury car may quote their Australian Business
Number (ABN)(3) and not pay LCT. This mechanism is designed to
avoid LCT becoming payable unless the car is sold or imported at
the retail level.
Clause 9-5 provides that a
recipient will only be entitled to quote if registered for GST
purposes and intends to use the car for one of the following
purposes, and for no other purpose:
-
- hold the car as trading stock;
-
- carry out research and development for the manufacturer of the
car; or
-
- export the car in circumstances where the export is GST-free
under Subdivision 38-D of the GST Act.
Proposed Division 9 also
provides for periodic quoting, the manner and form in which a quote
must be made and the consequences of incorrect and improper
quoting.
2.0 Paying Luxury Car
Tax
Proposed Subdivision 13-A
provides that LCT on supplies of luxury cars will be added to net
amounts under Division 17 of the GST Act. Adjustments in relation
to supplies or importations will be possible, which may either
increase or decrease net amounts.
Clause 27-1 provides that
net amount has the same meaning given by section
195-1 of the GST Act, which will be the sum of GST attributable to
a tax period, less the input tax credits attributable to that
period. The amount of LCT payable will be included in the net
amount.
Proposed Subdivision 13-B
provides that LCT on importations of luxury cars will not be
incorporated into net amounts but will generally be paid with
customs duty.
2.1 Adjustments
Proposed Division 15 provides
for adjustments to be made to increase or decrease the net amount
in order to take into account circumstances that occur after the
supply or importation of a car, which result in too much or too
little LCT being imposed. Adjustments by the supplier, the
recipient or the importer will be possible depending upon the
circumstances.
Examples of circumstances where a LCT adjustment
could arise include:
-
- cancelling the supply of, or returning, a luxury car;
-
- changing the consideration for the supply;
-
- using a luxury car for a purpose other than that intended when
the supply was made;
-
- writing off as bad a debt representing the consideration for a
supply upon which LCT was payable.
2.2 Credits
Proposed Division 17 provides
for a credit of LCT paid in circumstances where there would be no
entitlement to an adjustment. This may arise because LCT on the
supply of a luxury car was overpaid, either because of an error in
the calculation or because the recipient was unable to quote at the
time of the supply or importation, as for example, where a
recipient was not registered for GST purposes.
2.3 Anti-avoidance Measures
The anti-avoidance provisions of Division 165 of
the GST Bill will cover avoidance schemes in relation to LCT so far
as they affect net amounts, because such schemes would affect
amounts payable under the GST Act.
With respect to LCT on importations,
clause 13-30 deems Division 165 of the GST Act to
apply to amounts payable under Subdivision 13-B as
if they were amounts payable under the GST Act.
3.0 Application of Luxury Car
Tax to the Commonwealth
As liability to LCT cannot extend to the
Commonwealth or certain Commonwealth entities, provision is made in
proposed Division 21 for the notional application
of LCT and LCT adjustments.
1.0 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.(4) 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.(5) One of the
advantages of the GST was that it would apply only one rate to
taxable goods and services.(6)
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.(7)
2.0 Minor
Errors
2.1 Bill
The definition of 'luxury car tax
threshold' in clause 27-1 is
incomplete.
2.2 Explanatory Memorandum
2.2.1 The formula in each of paragraphs 2.47,
2.64 and 2.81 is incomplete.
2.2.2 The example in paragraph 2.64 has been
superimposed over text.
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.
-
- 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.
- Costello, P., MP, 1998, Tax Reform: not a new tax, a new
tax system, at p. 89.
- Details of the proposed ABN are contained in the A New Tax
System (Australian Business Number) Bill 1998, introduced in the
House of Representatives on 2 December 1998 as part of the Tax
Reform Plan. See Bills Digest No. 98 of 1998-99.
- Costello, P., MP, 1998, Tax Reform: not a new tax, a new
tax system, at p.72.
- Ibid., p.77.
- Ibid., p.80.
- 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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