Rorting of luxury car tax sparks calls for reform from automotive industry

The Federal Chamber of Automotive Industries (FCAI) has called for reforms to the luxury car tax after an Auditor-General’s report released last week showed a growing number of people are posing as wholesale car dealers to avoid paying the luxury car tax.

According to today’s Australian Financial Review, the number of instances where the tax loophole has been exploited is growing by 10%.

Car enthusiasts can pose as wholesale car buyers simply by quoting an Australian Business Number and claiming that the cars are trading stock.

Currently the luxury car tax applies to vehicles valued at more than $57,466 and $75,375 for fuel-efficient cars. The payable tax stands at 33%, up from 25% as of July 2008. Luxury vehicles that are two years old can be sold without attracting luxury tax.

FCAI chief executive, Andrew McKellar argues the policy needs urgent reforms.

“We effectively have a policy in Australia where in order to buy cars with advanced environmental and safety technology, you are being taxed at a premium rate,” McKellar told SmartCompany this morning.

“Instead we should ask, do we really want people to pay more for cars with better safety features. If they [the Federal Government] don’t abolish the luxury car tax, they should at least clean up rorting and look at alternatives to reform the tax.”

According to the Auditor-General’s report, the ATO had abolished its motor vehicle team in 2008.

“We have had anecdotal evidence that there is increasing abuse against the system,” he says.

“There has been very little action by the ATO to discourage this from happening. The most fundamental point is the policy is flawed and it creates a negative distortion in the market.”

Paul Drum, head of business and investment policy at CPA Australia, says tax avoidance is an “unintended consequence”.

“Under the current system, people can pay for new cars and claim they are trading stock,” Drum told SmartCompany.

“After two years, they can on-sell the cars with the luxury tax still factored into the price. If the law permits it, everyone should buy themselves a nice BMW X5.”

Drum says the rorting needs to be looked at by an independent inquiry.

“Maybe the problem is the luxury tax itself?” Drum told SmartCompany.

“We thought this was something that had been addressed but it clearly hasn’t. The best way to look at it is to ask if there is a systematic problem with the law. This needs to be looked at by the Inspector-General.”