Get your LCT right
We have identified some common errors and compliance issues with luxury car tax (LCT) claims. Use the tips below to avoid making these errors and get your obligations right.
On this page
When to quote your ABN
LCT can be deferred in some circumstances when you quote your Australian business number (ABN) to the dealer/wholesaler. This is called buying 'under quote' or 'quoting'.
If you're a business, you can quote when you have a valid ABN, are registered for goods and services tax (GST) and are:
- a luxury car dealer who is purchasing the car solely as trading stock
- an entity conducting research and development (R&D) on the car for the manufacturer, or
- intending to make a GST-free export.
If you're a car dealer, you are correctly supplying under quote if:
- the ABN quoted is valid and registered for GST
- a copy of the purchaser's motor dealer licence or other entitlement to trade in cars is retained.
If you are unsure if the car's purchaser is a legitimate motor vehicle dealer, then you should consider limiting your risk by not accepting the quote.
Keep records to support your claim
It's important to keep accurate and current records to support your LCT claim and apply for adjustments on your business activity statement (BAS).
You need to provide information that substantiates your claims, including records showing:
- that you're conducting an enterprise involving trade in luxury cars
- how you acquired, or imported, and paid for the cars
- how you've used the car while you held it
- how you've sold, exported or otherwise resupplied the car.
Other records may also be required to substantiate LCT claims.
Reporting and claiming correctly
Some common errors when reporting or claiming LCT include:
- using an incorrect formula or the wrong LCT threshold
- dealers/resellers who deferred LCT, not reporting and paying LCT on their BAS immediately after they sell the car or starting to use it for a non-quotable purpose
- primary producers or tourism operators claiming a refund via the BAS and not via the Application for luxury car tax refund – primary producers and tourism operators form
- claiming a GST credit for the GST and LCT, when you cannot claim back the full GST or the LCT.
You need to report LCT on your BAS, using the same tax period as you do for GST reporting. Refer to the LCT rates to make sure you're using the right ones.
What attracts our attention
Our data and experience show most clients are trying to comply with their LCT obligations. We try to make it as easy as possible to meet these obligations.
However, we have observed small amounts of non-compliance, as well as tax avoidance schemes and sham arrangements directed at avoiding LCT. We have sophisticated systems in place to identify these behaviours and take firm action to ensure legislation is complied with, and enforce a level playing field for businesses.
We focus on issues and behaviours of those who actively try to avoid their LCT obligations. Some of the behaviours we are most concerned about include:
- resellers who undercut legitimate dealers on price by evading LCT and GST on luxury car sales – these reseller entities manipulate buyers and sellers for their own financial gain to the detriment of the broader community
- individuals who attempt to pass off private luxury car purchases as a trading enterprise to fraudulently access LCT and GST benefits
- dealers or resellers falsely asserting that luxury cars are being held solely as trading stock when the cars are being used frequently for 'extended' test drives, personal use or informally leased or sold
- organised criminal networks infiltrating the luxury car industry to launder money, hide assets and commit tax fraud, including LCT fraud – these networks contribute to the shadow economy and deprive legitimate business from competing fairly in the market.
You may be penalised or face criminal prosecution if you engage in or facilitate these types of behaviours.
- Taxpayer Alert TA 2021/4 – Structured arrangements that facilitate the avoidance of luxury car tax – describes our concerns about arrangements that involve the sale of new or second-hand luxury cars designed to avoid LCT or improperly obtain refunds.
What you should do
You should consider whether our concerns apply to you. If you have entered into similar arrangements or you are aware of others that have, we encourage you to:
- ask for our view by applying for a private ruling
- seek independent advice regarding the legal and tax consequences of your arrangement
- make a voluntary disclosure to reduce penalties that may apply.
You can also contact us by:
Penalties will be significantly reduced if you contact us and make a voluntary disclosure. Generally, the reduction is greater if you make the disclosure before we notify you of an examination of your tax affairs.
If you are a registered tax agent or adviser who has been involved in these arrangements, we encourage you to contact us, as you may be perceived to be complicit in or a 'promoter' of the scheme.
What to do if you have information
To provide information regarding these types of behaviours and arrangements, or about a promoter of these:
- phone us on 1800 177 006 (after the initial messages, please leave a message)
- complete the ATO Tip-Off Form.
Resellers of cars avoiding LCT
Frank (a second hand car dealer) is approached by Malcolm (another car dealer) who advises he has a scheme to make some quick money with minimal effort.
Malcolm explains the scheme as follows:
- Frank will buy cars from a luxury car dealership for their full price, inclusive of LCT. Malcolm will give Frank the money to cover the cost of each car, minus the LCT component.
- Frank will claim a refund for the LCT from the ATO, on the basis that he is a car dealer holding the cars as trading stock.
- Within a couple of days, Frank will sell the cars under quote to Malcolm, who then on-sells the cars to his customers.
- Malcolm will sell the cars to his customers inclusive of LCT, but instead of remitting the LCT to the ATO, Malcolm will split the LCT component of the sale with Frank.
As we stop and review all LCT refund claims, we determine the sale of cars from Frank to Malcolm is a sham, because each sale forms part of an arrangement intended to avoid LCT rather than a genuine car sale. Frank is therefore not entitled to a refund of LCT.
Frank then approaches Malcolm for the money he was promised, but Malcom has disappeared and no longer responds to his calls. In addition to being out of pocket for a considerable sum of money, Frank may also face criminal prosecution as a result of his actions.
Change of use of car
Jason runs a car dealership and buys a new luxury car from an importer in January 2018. Jason defers payment of the $40,000 LCT at the time of importation, because he buys the car under quote on the basis it will be used as trading stock and for no other purpose. Jason later decides to use the new car as an executive car in the dealership, which is not a quotable purpose, with the intention to later sell it second hand.
Thirteen months later Jason sells the car for less than the original purchase price, and remits $20,000 of LCT to the ATO on the next BAS.
As part of a review of Jason's records, we advise Jason that because the car was used for a non-quotable purpose, he should have adjusted the LCT payable on the BAS in that earlier period.
Since Jason has already sold the car, he is unable to adjust the price on it to collect the additional LCT and the business needs to pay the adjusted amount of LCT (being $40,000) and is also required to pay a tax shortfall penalty and interest charges.
Quoting – insufficient evidence that the purchaser is a motor vehicle dealer
Ting works as a salesperson for a luxury car dealership. Francis visits the dealership and tells Ting that he has a motor dealer’s licence and wants to buy a car under quote. Francis provides copies of the motor dealer’s licence and Ting confirms he is registered for GST and LCT. Francis tells Ting that he is planning on using the car for personal use. This is not a quotable purpose, but Francis doesn’t want to pay LCT.
Ting knows that Francis is not entitled to quote under these circumstances, but wants to make the sale. Ting accepts the quote and sells the car under quote excluding LCT from the price.
The dealership manager, Sonya, reviews the weekly sales. It concerns her that Ting accepted the quote as part of the sale.
Sonya calls us and we advise her that since Ting knew Francis was not entitled to quote, the quote is not effective. Sonya's dealership would now be liable for the LCT.
Improperly quoting to avoid LCT
Tim was a restauranteur and purchased a luxury car under quote. By using the ABN for his restaurant business, he presented himself as a motor dealer to the car dealer, and signed documents declaring that he intended to hold the car as trading stock.
When we audited Tim's restaurant, a number of irregularities with the records were discovered, including evidence that Tim had used the car for private purposes and intended to retain it while keeping up the appearance of trying to sell it.
Purchasing a luxury car, in circumstances where you are not entitled to quote, or by falsely quoting an ABN, is a criminal offence.
Tim was charged under the s135.1 of the Criminal Code (intention of dishonestly causing a loss to a Commonwealth entity) before pleading guilty.
He received a custodial sentence of 18 months and was required to serve a minimum of 4 months. He also received a two year good behaviour bond with a $4,000 assurance, and was required to pay a reparation order of $150,000 for the unpaid LCT amount.
Avoiding common errors and compliance issues with your luxury car tax (LCT) claim.