The true cost of 'big, dumb utes': Tax loopholes for American utes like the Ram 1500, Chevrolet Silverado and Ford F-150 are costing taxpayers hundreds of millions each year

Australia is losing out on hundreds of millions of dollars in taxes thanks to lenient exemptions for utes – particularly full-sized American pick-ups – says a leading policy think tank.

A new report from The Australia Institute this week called out what it describes as a loophole in Australia’s tax policy which allows buyers of large utes, like the Ram 1500, Chevrolet Silverado or Ford F-150, to avoid paying the Luxury Car Tax (LCT).

The Australia Institute says that in 2023 the loophole cost Australia more than $250 million, with buyers of these utes being able to avoid LCT “regardless of if the vehicles are used for work, recreation or just commuting”.

The report calls for the Australian Government to remove the LCT exemption for utes, pointing out the LCT doesn’t affect the vast majority of utes that are used for “legitimate commercial purposes rather than personal luxuries” as the LCT only applies to new vehicles costing more than $80,567 as of the 2024-25 financial year according to the Australian Taxation Office (ATO).

During the 2023 calendar year, the threshold increased from $71,849 to $76,950 when the financial year changed from FY2022-23 to 2023-24. Pretty much every full-sized ute’s price sat above the LCT at the time, meaning every ute sold amounts to thousands of missed tax dollars.

In 2023, Australians bought 10,363 vehicles in the full-sized ute segment, which includes the Chevrolet Silverado, Ford F-150, all three of Ram’s utes (1500, 2500 and 3500) and will eventually include the Toyota Tundra which is in trial and not yet on the market.

The Australia Institute’s report methodology is fairly conservative, with the figure it estimated  through its calculation landing at about $321 million and being trimmed down to “more than $250 million” to provide a healthy margin of error. It also states that about three quarters of the total ‘avoided taxes’ that amounted to $250 million were made up of full-sized utes like Rams and Silverados.

To put it into perspective, a $137,950 RAM 1500 Laramie would be hit with $19,000 in taxes if it was a passenger car. A flagship RAM 1500 TRX, meanwhile, would attract nearly $50,000 worth of LCT.

The report also noted the concerning increase in the category of American utes between 2022 and 2023 being more than 21 per cent, though it appears the segment’s sales may be reaching a plateau as the first half of 2024 has seen sales down by 11 per cent compared to the same period last year.

While The Australia Institute suggests closing the tax loophole for what it calls 'luxury utes', it’s not calling for any tax exemptions to be removed for utes that are genuinely used for commercial purposes.

Additionally, the report says there are other policies, both current and expired, which have contributed to the increase in expensive, polluting utes on the road. As well as the relatively well known Fringe Benefits Tax exemptions, the report lists “road and parking regulations, the under-pricing of road damage and carbon emissions and the now-expired Morrison Government’s ‘Temporary Full Expensing’ and the ‘Loss Carry Back’ tax offset” as encouraging Australians to buy large utes rather than smaller or more efficient vehicles.

“The Australian public is subsidising big, dumb utes by hundreds of millions of dollars each year,” said Rod Campbell, Research Director at the Australia Institute.

“These vehicles are damaging roads, reducing safety and increasing emissions, yet they are given a massive tax break.

“Removing the luxury car tax exemption will not affect most ute drivers, particularly tradies.

“Instead it targets those buying large luxury vehicles, worth sometimes hundreds of thousands of dollars, for personal use.”

Campbell says it doesn’t make sense for the government to be effectively encouraging more polluting vehicles, pointing out that the cost of subsidising them far outweighs the costs of some more environmentally friendly policies.

“Economics 101 says that governments should tax things they want less of, and subsidise things they want more of, and it is stunning that the Australian Government seems to want more big, dumb utes.

“This tax break for luxury utes costs more than ten times the Government’s fund for assisting the states to construct or upgrade bicycle paths, the Active Transport Fund.

“Big utes impose considerable costs on society, whether it’s safety concerns or the impact on our roads and climate. 

“Removing the luxury car tax exemption for these vehicles is a good first step in accounting for these costs.”