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  • Luxury car tax payable gap 2015–16

    This information is for historical purposes only.

    This document provides an analysis of the luxury car tax (LCT) payable gap estimate for the 2014–15 financial year, as well as details of the methodology we use for calculating the gap estimate. We are in the process of refreshing this estimate and anticipate it will be published in October 2017.

    LCT is a tax levied on the value of certain luxury cars sold in or imported to Australia. LCT is paid by businesses (principally dealers) that sell new or imported luxury cars, and also in some cases by private individual importers. Most LCT is collected by the ATO while some, mostly from private importers, is collected by the Department of Immigration and Border Protection.

    Additional taxes on luxury vehicles have been imposed since 1979. A 25% LCT was introduced on 1 July 2000 when the GST was introduced and the wholesale sales tax abolished. In 2008, LCT increased to 33%. There have been no further changes to the rate. However, the threshold at which LCT applies has been adjusted.

    The annual threshold for 2014–15 was:

    • $75,375 for fuel efficient cars
    • $61,844 for other vehicles.

    LCT is generally payable when a car is sold or imported at the retail level. It is additional to GST. Usually businesses can quote the purchaser’s Australian business number (ABN), to delay the imposition of LCT until the last transaction.

    Financing arrangements used to underpin motor vehicle dealerships, and the use of some vehicles (trading stock) for other purposes, can trigger a LCT liability prior to the vehicle being sold. We are engaging with industry to understand areas for clarification or improvement regarding these issues.

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    Measuring the LCT payable gap

    The LCT payable gap is a bottom-up data-matching estimate. We take the number of cars sold from industry data and sale prices from registration data to calculate total theoretical LCT liability.

    The gap only estimates net LCT payable, not LCT adjustments or refunds. However, LCT adjustments and refunds are comparatively low. In 2014–15, these totalled $9.8 million and $260,000, compared to $516 million net LCT collected.

    Our calculation of LCT takes into account the fuel efficiency of vehicles and exemption status. As much as possible, we remove the sale of commercial and other vehicles not subject to LCT.

    Combining these data sources, we estimate a theoretical LCT amount. This is compared to actual LCT revenue on an accrual basis.

    The value and percentage of the estimate can be affected by small changes in value or assumptions. These can have a cumulative effect, which is magnified by the small tax base.

    The reliability of this estimate is assessed as medium.

    Trends and latest findings

    The tax gap estimate for LCT payable is reasonably stable.

    Over the past six years, it has ranged from 3.9% to 5.8% of the total value of LCT.

    Overall, there are relatively few taxpayers affected by LCT.

    LCT compliance is generally high, but instances of non-compliance occur in a small segment of the luxury car market. However, positive changes in industry behaviour have resulted in a significant reduction in the gap.

    The following table shows the tax reported, adjustments, and gross and net LCT payable gap estimates for the period 2009–10 to 2014–15.

    LCT payable gap, 2009–10 to 2014–15(a)(b)

     

    2009–10

    2010–11

    2011–12

    2012–13

    2013–14

    2014–15

    $m(c)

    Tax reported

    520

    515

    465

    430

    465

    515

    Gross gap

    35

    50

    70

    35

    25

    40

    Adjustments

    15

    20

    45

    10

    0

    10

    Net gap

    20

    30

    25

    25

    25

    30

    %

    Gross gap

    6.7

    9.4

    14.0

    7.2

    5.1

    7.3

    Net gap

    3.9

    5.8

    4.6

    5.1

    4.7

    5.2

    (a) Gap estimate for LCT payable only. Amounts and percentages may not reconcile due to rounding.(b) Changes from previously published estimates are due to revisions to ABS data, updated ATO data and a modified approach to determining liabilities reported but not paid.(c) Rounded to the nearest $5 million.

    The graph below shows the trend in tax reported and the net LCT payable gap over the same period.

    Amount reported and net gap – LCT payable, 2009–10 to 2014–15(a)(b)

    This graph shows the net LCT payable gap from 2009–10 to 2014–15 in relation to the amount of LCT reported.

    (a) Gap estimate for LCT payable only.(b) Gap estimate not available for 2008–09.Data sources: Federal Chamber of Automotive Industries, Wheels magazine and ATO data.

    Managing the LCT payable gap

    The overall risk rating for LCT payable is low.

    Although LCT is relatively simple to administer, there are pockets of systemic non-compliance (incorrect quoting, errors in calculation and deliberate LCT avoidance) that affect the size of the gap. This was the subject of industry complaint and media reporting several years ago. Case selection and analysis, and industry reporting suggest non-compliant behaviour has reduced since then.

    Incorrect quoting and calculation errors can be addressed with clear guidance and clarification of the law.

    Deliberate LCT avoidance can take different forms, such as:

    • failure to report LCT
    • invalid refunds – refunds are only available in very limited circumstances
    • using trading stock for other purposes, including attempts to disguise private use of cars as business use.

    Our compliance efforts concentrate on improved data matching and intelligence gathered from previous compliance work.

    We are undertaking specific projects to obtain and review purchase and sales of motor vehicle data. These projects will review selected timeframes, for 10 high-end luxury car marques.

    To identify and treat potential non-compliance, we developed targeted case selection using:

    • state and territory motor vehicle registrations data
    • Department of Immigration and Border Protection import data.

    Where non-compliance is due to taxpayer’s errors or uncertainty, we seek to:

    • clarify the law
    • provide clear advice and guidance on our website at ato.gov.au.

    We identify entities trading in luxury cars, but not remitting LCT, through data matching with:

    • the Department of Immigration and Border Protection
    • state and territory motor vehicle registries.

    We also review LCT refunds claimed on business activity statements, where they do not appear to be supported by legitimate motor vehicle dealing activity.

    We prosecute cases where alleged motor vehicle dealer operations are set up to mask the purchase of private vehicles. Prosecution action aims to change mindsets of clients and dealers contemplating non-compliant activity.

    Voluntary compliance ratio

    The voluntary compliance ratio (VCR) complements the LCT payable gap by measuring the proportion of taxpayers fully compliant with all four pillars of compliance. This means the taxpayer is correctly registered, lodges by the required due date, reports the correct amount of LCT and pays this amount on time.

    Reporting the VCR by pillar of compliance shows that the majority of LCT payers are compliant with their lodgment obligations. Incorrect reporting has the biggest influence on LCT voluntary compliance.

    The VCR for LCT has been steadily increasing over the previous five financial years. In 2014–15, the VCR equalled 92% in LCT-value terms. At the taxpayer level, the VCR has declined slightly and was 51% in 2014–15.

    LCT voluntary compliance ratio, 2010–11 to 2014–15(a)

    This graph shows the LCT voluntary compliance ratio (VCR) at both the taxpayer and LCT-value level, from 2010–11 to 2014–15.

    (a) Previously published figures updated with latest LCT payable gap data.Data source: ATO data.
      Last modified: 29 Aug 2017QC 53163