Tax office attacks car discounts

The Federal Government will take a third of any manufacturer discount on cars priced more than $60,000, as part of sweeping changes to the tax rules on hidden dealer rebates introduced today.

Under the new tax, a car with a "factory bonus" discount could actually end up being dearer than a vehicle sold at full price.

Industry figures show Toyota customers already pay more Luxury Car Tax than buyers of BMWs, Mercedes-Benzes and Audis because it sells so many LandCruiser four-wheel-drives and Tarago people movers -- and most German cars priced up to $75,375 get an exemption because they’re classified as “fuel efficient vehicles”.

But changes to the LCT rules that came into force on May 1, 2014 mean that if a car company offers a dealer a cash-back bonus of, for example $4000, the customer will only get $2680 off the price of the car.

Discounts offered from a dealer’s profit margin won’t be subject to the tax, which means dealerships will be under more pressure to trim their already slim margins.

The industry is fuming about the tax grab after it lost a battle in the Federal Court that had been running since September last year.

The changes may see car manufacturers change the way they invoice vehicles to dealers, to side step the new tax.

For example, rather than offering a $4000 “bonus”, as it is called, car companies may simply reduce the invoice cost to the dealer. For now, though, buyers must foot the bill.

Under the old system, the 33 per cent LCT was paid on any amount above $60,316 on the manufacturer’s list price (which already includes 10 per cent GST), any accessories that are added, and the dealer delivery fee.

Under the new system, LCT will still apply to those items, but it will also apply to any hidden bonus or “dealer incentive” that may be on offer. Even a modest $1000 discount will be reduced to $670.

The car industry has questioned why the tax only applies to vehicles priced above $60,316 and repeated calls for a review of what it describes as a discriminatory tax.

“The levying of LCT on retail incentives is a de facto extension of the LCT into an area it was never intended to cover,” said Mercedes-Benz Australia spokesman, David McCarthy.

“To in effect tax a retail incentive on just ‘Luxury Cars’ makes no sense when other retail incentives in other industries do not attract any adverse taxation imposts.”

Tax office figures show LCT generated $441 million in revenue in the 2011-2012 financial year, a 7.9 per cent decrease from the $479 million received the year before.

Toyota Australia is yet to comment on the LCT impact on dealer incentive payments. But in June 2012 the typically conservative Toyota called for the LCT to be abolished completely.

At the time, Toyota Australia’s executive director of sales and marketing, Matthew Callachor, said the LCT was “inefficient, punitive and poorly designed”.

“It is discriminatory because it applies only to vehicles and the arbitrary threshold is not set at a level that most people would consider a luxury car,” said Mr Callachor.

“Not only that, it is an additional tax impacting the industry. Motorists already have to pay GST, stamp duty and registration fees when buying a new car, as well as a hefty tax on petrol.”

LCT was originally applied at 25 per cent, but was increased to 33 per cent in 2008 by the former Rudd Government.

The example below, prepared by Polk Australia, which provides the online price calculators for most car company websites, shows that under the new system a car with a $1000 discount could actually be dearer than a vehicle sold at full price.

Old system
RRP: $65,000
Manufacturer discount or rebate: None
Dealer delivery charge: $1000
Luxury Car Tax: $1705.20
Stamp duty: $3390
Compulsory Third Party Insurance: $464.20
Registration: $313.40
Drive-away price: $71,782.80

New system
RRP: $65,000
Manufacturer discount or rebate: $1000
Dealer delivery charge: $1000
Luxury Car Tax: $2005.20
Stamp duty: $3410
Compulsory Third Party Insurance: $464.20
Registration: $313.40
Drive-away price: $72,192.80

This reporter is on Twitter: @JoshuaDowling