The luxury car tax (LCT) gap is the difference between the luxury car tax the ATO expects to collect and what we would have collected if every taxpayer was fully compliant with tax law, also known as the theoretical tax liability.
For 2022–23, we estimate a LCT net gap of 3.7% or $43 million. This means more than 96% of the total theoretical tax liability is expected to be collected. Voluntary performance is at 95.1%, an improvement from 92.5% in the previous year.
Gap analysis is more useful for identifying the trend over time – rather than focusing on the absolute gap value for each or any year. This is consistent with the positioning of tax gap estimates for other taxes and is the approach adopted in international tax gap reporting programs. Accordingly, care needs to be taken when looking at individual year tax gap estimates. When viewed as a trend over time, we see that the LCT gap has improved over the past three years with LCT collections growing faster than the overall LCT tax base.
The gap estimates do show volatility over time. Our analysis suggests that the size of this gap is sensitive to movements in macroeconomic factors. These include exchange rates and interest rates, as well as the performance of housing markets. The sensitivity of the LCT gap is further exacerbated by several factors, such as its relatively small tax base and the discretionary nature of luxury car purchases.
The key behaviours contributing to the LCT gap include entities who:
- engage in fraudulent schemes to extract the LCT from the sale of a car via incorrect quoting or claiming LCT refunds
- misuse the provision to quote their ABN when the car may not be trading stock
- deliberately operate outside the system and are reckless towards their obligation to register for LCT
- erroneously or incorrectly classify imported vehicles to avoid paying LCT
- fail to understand their record keeping and reporting obligations due to lack of understanding the LCT legislation.
|
Element |
2017–18 |
2018–19 |
2019–20 |
2020–21 |
2021–22 |
2022–23 |
|---|---|---|---|---|---|---|
|
Population |
1,946 |
2,022 |
2,070 |
2,203 |
2,876 |
2,881 |
|
Gross gap ($m) |
146 |
91 |
117 |
72 |
76 |
57 |
|
Amendments ($m) |
21.0 |
12.4 |
6.5 |
7.3 |
13.2 |
14.3 |
|
Net gap ($m) |
125 |
79 |
110 |
64 |
62 |
43 |
|
Expected tax collections ($m) |
691 |
667 |
638 |
872 |
952 |
1,127 |
|
Theoretical liability ($m) |
816 |
746 |
748 |
936 |
1,015 |
1,170 |
|
Gross gap (%) |
17.9% |
12.2% |
15.6% |
7.6% |
7.5% |
4.9% |
|
Net gap (%) |
15.3% |
10.5% |
14.7% |
6.9% |
6.2% |
3.7% |
Figure 1 shows the trend in the gross and net tax gap estimates over the same period.
Figure 1: Gross and net LCT gap (percentage), 2017–18 to 2022–23
For previously published tax gap figures, see Australian Tax Gaps - Data.gov.au External Link