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Luxury car buyers gain extra tax-free window

Class struggle: Mercedes-Benz says the delayed introduction of a more punitive luxury car tax will not hurt the run-out of its C-Class range ahead of a new model due in July.

Government delays introduction of revised luxury car tax burden for buyers

24 Feb 2014

HIGH-END car buyers have received a rare surprise, gaining an extra couple of months’ grace before an extra tax slug adds to the cost of discounted luxury cars.

The Australian Tax Office has advised car-makers that the introduction of the redefined tax, which will scoop up extra revenue as buyers need to dig deeper to pay tax on dealer incentives that make cars cheaper, will extend from the end of this month to May.

The extra tax burden on buyers relates to the verdict of a court case brought against new-car dealership group AP Group last year by the Commissioner of Taxation.

The court’s ruling said 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.

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 tax office warned.

Mercedes-Benz senior manager of public relations, David McCarthy, said buyers would wear the full burden of the tax once it came into effect, although he said it would not have a significant impact on the run-out of its C-Class small car range – one of its biggest sellers -- ahead of an all-new model due in July.

Factory incentives are often used to help a dealership sell remaining stock of models due for replacement.

“I think obviously the tax department was a bit ambitious with the implementation, so what they did by delaying it was the right thing,” Mr McCarthy said.

“I don’t think there will be a significant impact (on Mercedes-benz’s C-Class run-out) because we’re on the lower end of the tax scale or below 7.0 litres (of fuel per 100 kilometres), so the impact is not expected to be that great.”

The luxury car tax’s threshold, where buyers must pay an extra 33 per cent tax for every dollar spent above a certain price, is currently set at $60,316.

Buyers wanting fuel-efficient cars that use no more than 7.0L/100km have a higher threshold, set at $75,375.

The federal government resets the luxury car tax threshold each financial year.

This financial year, the tax is expected to raise about $400 million according to the government’s mid-year economic forecast, up from an earlier budget estimate of about $380 million.

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