Luxury Car Tax threshold increases by largest jump on record, helping EV pricing, but more work to do.

    If you buy a vehicle, there are all sorts of Government taxes placed upon that purchase, but one that really stings is the good old Luxury Car Tax. This is applied to vehicle purchases at a rate of 33% for every dollar over the threshold.

    This week the ATO released a revised Luxury Car Tax threshold, offering the biggest increase since it was introduced back in 2010.

    This additional tax is essentially a way to skim money from anyone who has the means to buy luxury vehicles. While taxes like GST and Stamp Duty apply to vehicles at all price points, the LCT applies to those buying cars premium and luxurious cars.

    That was at least the case until electric vehicles arrived on the market. The single largest cost of an electric vehicle is the battery and while there are far fewer parts in an EV than and ICE car, the resulting price to the consumer is higher.

    If you do the right thing by the environment and buy an EV, the price tag is simply higher than an ICE vehicle right now. Things get worse if you’re particular circumstance means you travel further to and from work and therefore need a larger battery, as those EVs with longer rangers have bigger batteries and bigger price tags.

    If someone had previously spent $60k on a vehicle, and switched to an EV, they could easily see the price tag jump to $80k, not because they’re a millionaire and buying luxury sports cars, but by helping the Government achieve their emission reduction targets.

    Those buying vehicles over $75,375 back in 2010/2011 would pay the LCT. In 2015/2016 the rate moved by $151 to $75,526 and stayed at this level until 2019/2020 when it was lifted by $2,039. The following year in 2020/2021 it rose again by $2,094.

    This year’s jump in the LCT threshold was a massive $5,257, rising to $84,916 which certainly helps more EVs land under that number. By comparison, if you were to purchase an ICE vehicle, the threshold is $13,067 less, so you’d start paying LCT on every dollar over $71,849.

    LCT is definitely heading in the right direction, in terms of supporting EVs, particularly while the purchase price remains higher than a comparable ICE vehicle.

    Personally, I’d like to see the LCT for EVs really come off, even for vehicles up to $100k. As an example, when I purchased my Tesla Model 3 back in 2019, there were two specs available at launch. The Standard Range and the Performance. This made for a very difficult decision, to buy a Standard Range Model 3 variant or pay a lot more for the Performance model, just to get the range I was after.

    These are essentially the same car, one with a larger battery and AWD, increasing stability in the wet (read: safety). This wasn’t a Ferrari or Lamborghini, this was a 4-door, mid-size sedan, a very practical vehicle, but as a result of selecting the longer range, then attracted thousands of dollars in LCT.

    While we’re a few years on from this, the plan by now was that EVs would be on a cost trajectory downwards, making more of them fall below this LCT threshold. Unfortunately, the international supply chain shortages have meant demand (increasing) has not been met by supply and prices are unfortunately rising.

    Good move ATO, but if Australia’s newest PM wants to really step on the accelerator pedal to transition our country to EVs, there’s more work to do here.

    Jason Cartwright
    Jason Cartwright
    Creator of techAU, Jason has spent the dozen+ years covering technology in Australia and around the world. Bringing a background in multimedia and passion for technology to the job, Cartwright delivers detailed product reviews, event coverage and industry news on a daily basis. Disclaimer: Tesla Shareholder from 20/01/2021

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