The tax grab that nets family cars

Almost 200 luxury cars are now exempt from Luxury Car Tax, so why do buyers of family cars pay millions for the tax-on-a-tax each year?

Family-car buyers are now paying as much Luxury Car Tax as purchasers of prestige brands.

The revelation comes as the industry renews calls for the 33 per cent levy to be dropped once Australian car manufacturing shuts down by the end of 2017.

A News Corp Australia investigation has found almost 200 European cars are now exempt from the tax -- which is 33 per cent on every dollar above $63,184, which already includes the 10 per cent GST -- while vehicles such as the Toyota Tarago, Toyota LandCruiser, Nissan Patrol and Volkswagen Kombi Mulitvan are slugged with the extra charge.

The Luxury Car Tax on a top-of-the-range Toyota LandCruiser is up to $16,805 before options are added, while a VW people mover can have $4935 of its price absorbed by the extra tax.

There are now more than 120 models from the top three German brands alone -- Audi, BMW and Mercedes-Benz -- not subject to Luxury Car Tax.

Figures show Toyota Australia customers pay an estimated $85 million a year in Luxury Car Tax -- compared to between $80 million and $90 million each from Audi, BMW and Mercedes-Benz -- even though just 12 models in the Toyota range of almost 100 variants are subject to LCT.

By comparison, two out of every three models in the line-ups of Audi, BMW and Mercedes-Benz -- more than 60 cars from each brand -- are subject to LCT.

News Corp Australia can exclusively reveal European car makers are lobbying their domestic governments to block Australia's proposed Free Trade Agreement with the European Union unless the Federal Government abolishes Luxury Car Tax.

The LCT is discriminatory as it is not imposed on other luxury items such as jewelry, boats, helicopters or private jets.

The car industry claims LCT is a form of tariff, and is discriminatory as it is not imposed on other luxury items such as jewelry, boats, helicopters or private jets.

"If the Federal Government wants a Free Trade Agreement with the European Union they are going to need to drop the Luxury Car Tax," said Mercedes-Benz Australia spokesman David McCarthy.

Although plans for an FTA with Europe are in their infancy the car industry is already lining up support from EU governments.

"There needs to be a complete review of Australia's taxation structure," said the managing director of Jaguar Land Rover in Australia, Matthew Wiesner.

"LCT acts like a tariff. How can Australia have a Free Trade Agreement (with the EU) if you still have this form of tariff?"

Dr Prafula Pearce, taxation expert and senior lecturer Curtin University, published a report in 2013 that found LCT was "discriminatory and inequitable."

"The question to ask is why vehicles should be singled out as luxury items and have further tax imposed on them," the report said.

"LCT has certainly passed its use-by date and appears to serve no purpose other than inequitable revenue raising for the Australian Government."

The Federal Government receives between $450 million and $500 million annually from LCT.

In Toyota's submission to the Productivity Commission -- before announcing its factory closure -- the usually conservative Japanese company blasted the tax.

"LCT is a punitive and inequitable tax that applies to more Toyota customers than to any other brand and Toyota supports calls for its abolition," said Toyota's 2013 submission.

"Some parties claim that it protects local manufacturing but there is no evidence that sales of locally built cars have increased since the LCT was introduced."

Despite the sharp increase in LCT in 2008, production of Australian-made vehicles fell to a 58-year low in 2014 as Ford, Holden and Toyota announced they would shut their local car assembly lines.

Intended to ensure a BMW or Mercedes sedan wouldn't be cheaper than a locally made Ford Falcon or Holden Commodore

Luxury Car Tax was introduced in the year 2000 to offset gradual tariff reductions on imported cars.

Intended to ensure a BMW or Mercedes sedan wouldn't be cheaper than a locally made Ford Falcon or Holden Commodore, it was initially 25 per cent of the cost of a car above $55,134, and the threshold was indexed to inflation.

In 2008, Prime Minister Kevin Rudd increased Luxury Car Tax from 25 per cent to 33 per cent, but raised the LCT threshold to $75,000 for so-called economy cars that consumed 7.0L/100km or less.

This financial year the threshold for Luxury Car Tax increased to 33 per cent of every dollar above $63,184; the LCT threshold on economy cars remained $75,375 as it has done for the past six years.