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 2021–22, we estimate a LCT net gap of 6.1% or $61 million. This means nearly 94% of the total theoretical tax liability is expected to be collected. Gross performance is at 92.6%, compared to the average of around 88% in the previous 5 years. During each year, amendments due to ATO compliance activity have accounted for around 1 - 2% of the theoretical liability, which is similar to the 5 year average for the period 2016–17 to 2020–21.
Compared to 2020–21, the net gap has declined in 2021–22, as strong demand and price conditions in the luxury car market saw faster growth in the expected tax collections relative to the theoretical liability.
The gap estimates have shown volatility from year to year. Analysis suggests that the size of this gap is sensitive to movements in macroeconomic factors. These include exchange and interest rates, as well as the performance of housing markets. The sensitivity of the LCT gap is further exacerbated by several factors, such as its relatively small tax base and the discretionary nature of luxury car purchases.
The key behaviours contributing to the LCT gap include entities who:
- engage in fraudulent schemes to extract the LCT from the sale of a car via incorrect quoting or claiming LCT refunds
- deliberately operate outside the system and are reckless towards their obligation to register for LCT
- erroneously or incorrectly classify imported vehicles to avoid paying LCT
- fail to understand their record keeping and reporting obligations due to lack of understanding the LCT legislation.
|
Element |
2016–17 |
2017–18 |
2018–19 |
2019–20 |
2020–21 |
2021–22 |
|---|---|---|---|---|---|---|
|
Population |
2,146 |
2,141 |
2,228 |
2,423 |
2,838 |
3,245 |
|
Gross gap ($m) |
43 |
145 |
90 |
115 |
71 |
75 |
|
Amendments ($m) |
8.2 |
21.0 |
12.4 |
6.5 |
7.3 |
13.2 |
|
Net gap ($m) |
35 |
124 |
78 |
109 |
64 |
61 |
|
Expected tax collections ($m) |
675 |
693 |
668 |
640 |
872 |
953 |
|
Theoretical liability ($m) |
710 |
816 |
746 |
748 |
936 |
1,015 |
|
Gross gap (%) |
6.1% |
17.7% |
12.1% |
15.4% |
7.6% |
7.4% |
|
Net gap (%) |
4.9% |
15.1% |
10.4% |
14.6% |
6.8% |
6.1% |
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), 2016–17 to 2021–22