The 2008 Federal Budget included a higher tax for luxury cars with effect from 1 July 2008. For the first time in more than ten years, Luxury Car Tax (LCT) will rise from 25 per cent to 33 per cent on vehicles with a GST inclusive value above the LCT threshold noted Wayne Pearson, Managing Director Deloitte Motor Industry Services.

The cars affected will be those that cost more than the current $57,123 luxury car threshold. This limit set for the 2007/8 financial year is reviewed annually by the Australian Tax Office and is subject to change.

“Whilst 90 per cent of luxury cars are imported, local brands such as the Holden Caprice, Holden Statesman, Ford's Falcon G6E and the Territory Ghia may also inherit this impost if their GST inclusive retail sale price exceeds the LCT threshold,” said Mr Pearson.

The key issues facing dealers will be:

• Timing. The change comes into effect from 1st July 2008.
  
  
• Can the lower rate be preserved? LCT is a retail tax so for any vehicle to retain the lower 25 per cent rate the following must take place:
  • The dealer must have title. That is to say in the case of stock under floor-plan finance, bailment has to be terminated by paying it out or transferring finance to an Equitable Mortgage Facility.
  • The customer must be issued with a tax invoice and or received consideration. Whilst registration is not essential it would assist in evidencing the sale in case of future scrutiny and or ATO audit.
    
    
• Vehicles in transit or with the manufacturer. These cars would not qualify for the lower tax rate as they are yet to reach the Australian taxing point, would still be held in bond or title would not have passed to the dealer.
  
  
• Anti Tax Avoidance. It is important that dealership management pay particular attention to the timing issues surrounding this rate change. The actual cut off date that comes into affect will be open to future scrutiny and any relevant anti tax avoidance legislation.