Another tax slug angers luxury car-maker

MERCEDES-Benz has called on the government to scrap more than $500 million a year it collects in luxury car tax as car-makers disappear from the Australian manufacturing landscape.

The call comes as the federal government hands the industry a sour Christmas gift, announcing it would soon dig even deeper into luxury car buyers’ pockets via its luxury car tax.

“The luxury car tax collects about $500 million a year, which interestingly is rather close to the co-investment (with Ford, Holden and Toyota) that the government undertakes,” Mercedes-Benz Australia senior manager of corporate communications David McCarthy told GoAuto.

“So when they’re not paying that, they’ve actually made it a lot harder to sustain that tax against allegations of it being a false tariff,” he said.

“In the past, we’ve (Mercedes-Benz) acknowledged the right of government to levy taxation. Now the luxury car tax, the money that it collects, has for the most part more than covered the co-investment for the local industry.”

However, Mr McCarthy said with Ford and Holden both announcing an end to local manufacturing – and with Toyota’s future still an unknown – it was difficult for the government to maintain that the tax was there to protect local car-makers.


You would have to question whether or not that luxury car tax, apart from being a de facto false tariff, actually does become a false tariff,” he said.

The luxury car tax is indexed every year to keep up with inflation. For cars that use more than 7.0 litres of fuel every 100km they travel, it adds 33 per cent to the cost of a vehicle for every dollar of the price above $60,316, and on top of GST.

Fuel-efficient vehicles using no more than 7.0L/100km have a slightly higher threshold set at $75,375.

Mr McCarthy’s comments come as the verdict of a recent court case reveals the federal government will reap even more luxury car tax from buyers who believe they are getting a bargain.

The case, brought against new-car dealership group AP Group by the Commissioner of Taxation, found that factory bonuses paid to dealerships to make cars even cheaper for buyers should also attract luxury car tax.

That means if a luxury car buyer, say, pays $59,000 for a $62,000 vehicle that includes a $3000 dealer discount provided by the factory, the buyer will have to pay the full 33 per cent luxury car tax on the hidden bonus – an extra $1000.

The federal court case related to the amount of luxury car tax due on incentives such as Toyota’s fleet rebates and run-out model support programs, Ford’s “retail target incentive” and Subaru’s “wholesale target incentive” programs.

According to the tax office, the court case means payments such as fleet rebates or run-out model support payments received from the manufacturer or distributor “will now need to be included as part of the sale price of the car”.

“This will increase the LCT value of the car and could result in some cars now exceeding the LCT threshold.”

The government has set a February 28 deadline for new-car showrooms to comply with the federal court’s finding.

Mr McCarthy said rather than targeting high-rollers, the luxury car tax was scooping up vehicles that many buyers would not even consider to be luxury models.

“The majority of luxury car tax is paid, in my understanding, by Toyota on vehicles such as the Prado (off-roader) and LandCruiser,” he said.

“Now, they’re not luxury cars. ... What they’re saying is you spend this money on a car, and the manufacturer puts some money on it, you’re going to pay more tax.

“It’s not just Mercedes-Benz customers who will be impacted.”

Mr McCarthy said Mercedes-Benz Australia “in no way, shape or form” agreed with the court’s ruling, but it was now stuck with it.

“Obviously we will abide by the decision, as will the dealers, but ultimately it’s the customer who is going to pay it.

“At the end of the day the customer is losing because the tax office is deciding ‘well, guess what, you get a discount, mate, but you’re still going to pay the only tax on luxury products in Australia’.”