Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)General outline and financial impact
Luxury car tax
The A New Tax System (Luxury Car Tax) Bill 1999 (LCT Bill) introduces a luxury car tax, from 1 July 2000, on taxable supplies and importations of luxury cars. The luxury car tax will apply at a rate of 25% of the value above the luxury car tax threshold. The new luxury car tax replaces the existing 45% wholesale sales tax (WST) that applies to luxury cars and will ensure that, following the introduction of the goods and services tax (GST), the value of luxury cars will fall in price by about the same amount as a car just below the luxury car tax threshold.
The luxury car tax threshold is a GST - inclusive value equal to the car depreciation limit (the car depreciation limit for the 1998-99 financial year is $55,134). A system of quoting is designed to avoid the tax becoming payable until the car is sold or imported at the retail level.
The luxury car tax is in addition to any GST that is payable on a luxury car, however, it is not on top of the GST. Luxury car tax is incorporated into the net amount under the GST system or, in the case of importations, is paid with customs duty.
The additional compliance cost impact of this measure is expected to be marginal because it will utilise the same administrative framework as the GST. For example, the registration, tax period, tax invoice and general anti-avoidance provisions in the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) are used for the luxury car tax.
Unlike GST, an entity that buys a luxury car to carry on an enterprise is not entitled to an input tax credit for luxury car tax payable.
Date of effect: The LCT Bill will commence from 1 July 2000, so that luxury car tax will apply to a taxable supply or importation of a luxury car after 1 July 2000.
Proposal announced: The Government announced the proposal in Tax Reform: not a new tax, a new tax system: The Howard Governments Plan for a New Tax System on 13 August 1998.
Financial impact: The effect of the luxury car tax on revenue cannot be separately identified from that of the GST and other tax reform measures. Since the luxury car tax will replace the existing WST luxury car tax, it is expected to neither increase nor decrease the revenue to any significant extent.
Compliance cost impact: To the extent that businesses face start-up and ongoing costs related to the GST, the additional impact of this measure will be marginal because it will utilise the same remittance framework as the GST.
Application: To coincide with the commencement of the GST and the abolition of the WST from 1 July 2000, the luxury car tax will apply to all taxable supplies and importations of luxury cars on or after 1 July 2000. Generally, luxury car tax will not apply to cars which have been subject to WST. For example, it does not apply to second hand cars that are on-hand before 1 July 2000 and supplied after. The luxury car tax will also not apply to non-registered entities. For example, a private sale of a luxury car by an individual after 1 July 2000 will not attract the luxury car tax.
Summary of Regulation Impact Statement
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- Low
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- Impact will be largely offset by the abolition of the WST system.
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- Businesses do face start-up and ongoing costs with luxury car tax, however, the net impact is expected to be small as the luxury car tax will utilise the same administration framework as the GST.
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- Luxury car tax is paid at the retail level and not payable if the registered recipient quotes (for example, if the car is held as trading stock). Transitional arrangements apply where stock is held on 1 July 2000.
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- Given that the Government will abolish the WST, and introduce a GST and luxury car tax, the overall impact on consumers is positive.
The main objective is to ensure that the price of luxury cars will fall under the new arrangements by about the same amount as a car just below the luxury car tax threshold. The luxury car tax implements the Governments policy in Tax Reform: not a new tax, a new tax system: The Howard Governments Plan for a New Tax System .
Consultation has been undertaken with government departments as well as preliminary consultation with industry groups in the developing stages and the Australian Taxation Office will monitor feedback on an ongoing basis.