Luxury Car Limit for Depreciation purposes
The luxury car tax limit for depreciation purposes under section 40-230 of the Income Tax Assessment Act 1997 for the FY 2017-18 is $57,581. This limit also applies for depreciation purposes to fuel efficient cars.
Example
A Caulfield accountant purchases a hybrid Mercedes Benz at a value of $75,000 in July 2017. The car is depreciated at a reduced cost base initial value of $65,094.
Luxury car tax threshold
Luxury car tax is the 33% tax imposed on the GST inclusive purchase price of luxury cars over the luxury car tax threshold. The luxury car tax threshold for the 2017-18 year is $65,094 which was provided for in a luxury car tax determination LCTD 2017/1.
For fuel-efficient cars the threshold remains at $75,526.
Contact Hillyer Riches Tax Accounting Firm Caulfield or for more information email travis@hillyerriches.com.au.
This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified
From 1 July 2019 the following car threshold amounts apply.
Income tax
There's an upper limit on the cost you use to work out the depreciation for the business use of your car or station wagon (including four-wheel drives). You use the car limit that applies to the year you first use or lease the car.
The car limit for 2019–20 is $57,581.
Goods and services tax (GST)
Generally, if you purchase a car and the price is more than the car limit, the maximum amount of GST credit you can claim is one-eleventh of the car limit amount.
You can't claim a GST credit for any luxury car tax you pay when you purchase a luxury car, regardless of how much you use the car in carrying on your business.
Luxury car tax
From 1 July 2019 the tax threshold for luxury cars increased to $67,525.
The threshold for fuel efficient luxury cars for the 2019–20 financial year remains at $75,526.
In general, the value of a car includes the value of any parts, accessories or attachments supplied or imported at the same time as the car.
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Luxury car tax rate and thresholds
Luxury car tax rate
Cars with a luxury car tax (LCT) value over the LCT threshold attract an LCT rate of 33%.
For LCT rates before 3 October 2008, refer to Luxury car tax rate – previous years.
Luxury car tax thresholds
The following table lists the LCT thresholds for the relevant financial year – the financial year the car was imported, acquired or sold.
If you buy a car with a GST-inclusive value above these LCT thresholds, you must pay LCT. In general, the value of a car includes the value of any parts, accessories or attachments you supplied, or imported, at the same time as the car.
| Financial year | Fuel-efficient vehicles | Other vehicles |
|---|---|---|
| 2019–20 |
$75,526 |
$67,525 |
| 2018–19 |
$75,526 |
$66,331 |
| 2017–18 |
$75,526 |
$65,094 |
| 2016–17 |
$75,526 |
$64,132 |
| 2015–16 |
$75,375 |
$63,184 |
| 2014–15 |
$75,375 |
$61,884 |
| 2013–14 |
$75,375 |
$60,316 |
| 2012–13 |
$75,375 |
$59,133 |
| 2011–12 |
$75,375 |
$57,466 |
| 2010–11 |
$75,375 |
$57,466 |
| 2009–10 |
$75,000 |
$57,180 |
The indexation factor for the 2019–20 financial year for:
- fuel-efficient vehicles is 0.987
- other vehicles is 1.018.
Car cost limit for depreciation
There is a limit on the cost you can use to work out the depreciation of cars and station wagons, including four-wheel drives. The maximum value you can use for calculating your claim is the car limit (irrespective of any amount you were paid for a trade-in) in the year in which you first used or leased the car.
| Financial year | Car limit | ATO reference |
|---|---|---|
| 2019–20 | $57,581 | No indexation – the indexation factor is 0.987 calculated as 368.1 divided by 373.0.
(Note: Annual Taxation Determinations for the car limit are no longer published.) |
| 2018–19 | $57,581 | TD 2018/6 |
| 2017–18 | $57,581 | TD 2017/18 |
| 2016–17 | $57,581 | TD 2016/8 |
| 2015–16 | $57,466 | TD 2015/16 |
Example 6: Applying the car cost limit
In July 2019, Laura buys a car for $60,000 to use in running her business. The car is a type to which the car limit applies. As Laura bought the car in the 2019–20 financial year, when working out the car's decline in value for the 2019–20 income year, the first element of the cost of the car is reduced to $57,581.
GST and motor vehicles
If you use a motor vehicle solely in carrying on your business and you're registered for GST, you’re generally entitled to claim a credit for the GST included in the price of the vehicle, provided you have a tax invoice. There are rules concerning luxury car purchases, leased vehicles and purchasing second-hand.
You generally have to account for GST when you dispose of a motor vehicle if the disposal is a taxable sale. There are rules concerning luxury cars, trade-ins, disposal to an associate and disposal by a charity. You may be entitled to a ‘decreasing adjustment’ (reduced GST payment) for the business use element if the vehicle was used for both business and private purposes, and for vehicles used for making financial supplies. You may need to make an ‘increasing adjustment’ if you continue to hold a motor vehicle after your GST registration is cancelled.
Definitions
For GST purposes, the term motor vehicle means a motor-powered road vehicle. It does not include a road vehicle where both of the following apply:
- The main function of the vehicle is not related to public road use.
- The vehicle’s ability to travel on a public road is secondary to its main function.
Examples of such vehicles include road rollers, graders, tractors and earthmoving equipment.
For GST purposes, a car is a motor vehicle designed to carry a load of less than one tonne and less than nine passengers. The term car does not include a motorcycle or similar vehicle.
When LCT applies
Generally, you're required to pay LCT if you're registered or required to be registered for GST and you sell or import a luxury car – this includes retailers, wholesalers, manufacturers and other businesses that sell luxury cars.
You also have to pay LCT if you're an individual (private buyer) who imports a luxury car.
LCT applies to sales of cars that are two years old or less. A car is more than two years old at the time of supply if it was manufactured locally or imported more than two years previously.
For LCT purposes, a car is a motor vehicle (but not a motorcycle) designed to carry a load of less than two tonnes and fewer than nine passengers. A limousine is classified as a car, regardless of the number of passengers it's designed to carry.
LCT applies to a car purchased by a person with a disability even if the car is GST-free. However, disability-related modifications are not subject to LCT.
LCT is also payable if you’re an endorsed public institution and you purchase a luxury car locally. An endorsed public institution refers to a museum, gallery or library that is registered for GST and endorsed as a deductible gift recipient. However, if the luxury car is a work of art or a collectors piece and is purchased for the sole purpose of public display, you don't need to pay LCT and can claim a refund at label 1F on your BAS for the LCT paid for the luxury car.
Purchasing a motor vehicle
If you use a motor vehicle solely in carrying on your business and you're registered for GST, you’re generally entitled to claim a GST credit for the GST included in the price of the vehicle, provided you have a tax invoice. You must include the amount you paid for the motor vehicle at label G10 (capital purchases) on your activity statement.
If you use a motor vehicle partly in carrying on your business, you’re generally entitled to claim a partial GST credit based on how much you use the motor vehicle in carrying on your business. You must include only the proportion of the cost of the motor vehicle that relates to business use at label G10 on your activity statement.
If you use the accounts method to work out your GST amounts, you include the GST payable on the purchase of the motor vehicle (or the proportion that relates to business use) at label 1B.
