Retrospective LCT rise unethical: FCAI
BY MARTON PETTENDY | 24th Jun 2008
As previously reported, the federal government’s 2008-09 Budget measure to increase, from 25 to 33 per cent, the LCT charged on the proportion of new-vehicle prices that exceed $57,123, was referred to a Senate committee for inquiry after failing to be passed by the Senate.
A week before it was due to be implemented, five weeks before Steve Bracks hands down his major review into the automotive industry and two months prior to the Senate committee’s decision on the LCT hike, the ATO and Treasury have now confirmed the controversial legislation’s commencement date will not be amended.
“There has been media speculation today that the Government may change the commencement date for the luxury car tax measure announced in the 2008-09 Budget,” said a press release issued on Monday by Mr Swan’s office, titled ‘Commencement date for the Luxury Car Tax increase’.
“The Government will not be amending the commencement date. Upon passage of the legislation, the measure will apply from 1 July 2008, as intended.
“The Australian Taxation Office has today released administrative advice for industry on how to make provision for this commencement date of 1 July 2008,” it said.
Earlier the same day, the ATO issued a release titled ‘Tax Commissioner provides clarification on luxury car tax”, in which tax commissioner Michael D’Ascenzo attempted to clarify how the proposed luxury car tax will apply to vehicles delivered from July 1.
“In the Federal Budget, the Government announced the luxury car tax would increase from 25 to 33 per cent from 1 July 2008.
“It is now clear the legislation to make that law will not be passed by then. However, if passed at a later date, the proposed law in its present form will apply retrospectively from 1 July 2008,” said the ATO release.
“If the law is enacted, motor vehicle suppliers will need to report and pay the additional 8 per cent tax on luxury cars delivered from 1 July 2008. They are entitled to pass on the additional tax to their customers.
“So if a car is ordered after 1 July but before the law is passed, motor vehicle suppliers can charge a higher price to cover the extra tax that will become payable if the law is passed. Alternatively, they can enter into contracts with customers that require customers to pay the amount of the extra tax after the law is passed.
“Where a luxury car is ordered but not delivered before 1 July, the supplier is entitled to include the extra luxury car tax in the price of the vehicle. This is because the rate of luxury car tax is determined by the date of delivery, not the date the order is placed. The current law continues to apply until the proposed law is enacted, which means the luxury car tax will continue to be 25 per cent until then.” Far from clarifying the LCT situation for new vehicle makers, importers, distributors, dealers and their customers, the Federal Chamber of Automotive Industries (FCAI) says advice from the ATO is complicated and fails to acknowledge the rights of car buyers.
“The announcement that came from the ATO and the treasurer only add to the confusion that already exists with this issue,” FCAI chief executive Andrew McKellar told GoAuto.
“They have failed to address the reality that there are many customers out there who have had vehicles on order for some time now, but who have not yet taken delivery, and who now face the retrospective impost of additional tax on their purchase.
“That is completely unacceptable, it is completely unethical and common sense would suggest that the decent and honourable thing the government should do in these circumstances is ensure that if the bill passes then any increase in tax is not applied retrospectively.
“The situation is a complete mess and the so-called ‘clarification’ from the tax office has only deepened confusion within the industry on how the tax should be collected,” said Mr McKellar.
“We have a history of not applying retrospective taxes in Australia and if the tax office insists on this, it will create an administrative nightmare for car dealers.
“What is expected to happen? Is the dealer expected to go and hit the customer up for the additional amount up front? What if they’re halfway through a contract or transaction? What happens in situations where you’re operating a finance lease? Are you supposed to now go back and work that into the capital value of the vehicle.
“It is not like going down to the shop to buy a can of beans. It’s a far more complex transaction that’s more involved than that. It happens over a number of months and the fact is that the government needs to recognise those circumstances and administer the arrangements accordingly.
“Car buyers, and the dealers who administer the sale, must not be held to ransom by the Federal Government and the tax office,” Mr McKellar said.
The FCAI says the tax increase must not take effect, if at all, until after the Senate inquiry has delivered its recommendations and the legislation is passed.
“The net effect has been that the industry and the public have been misled and in those circumstances the decent and honourable thing to do is to cop it sweet and for the government to agree that it should not be applied retrospectively.
“At the end of the day, if this rate increase had already been passed into law or if the bill eventually does go through without that aspect being amended, then the industry will have to cop it on the chin.
“But what I think is grossly unfair is to expect that customers should have to fork out retrospectively. The industry would cop it on the chin if it was applied from the date of effect. What we won’t cop on the chin is an attempt to back-date the tax to some earlier as is currently suggested by the government,” said Mr McKellar.
“The tax office and the Treasurer must understand the logistics of buying a new car. This current state of confusion underlines the lack of consultation with industry before the tax increase was announced.” Luxury car companies differ in their approaches to deal with the ATO advice, but are united in their opposition to the ATO ruling.
“Some things are so ridiculous they defy belief,” Porsche Cars Australia managing director Michael Winkler told GoAuto. “The ATO statement does nothing but throw confusion into the market place, for dealers and customers alike.
“It is totally naive and irresponsible of the Government to issue a statement like this and not expect the industry to be thrown into complete disarray.
“The statement shows a complete lack of understanding for how the car business operates. What the ATO is proposing is messy, unworkable and completely out of touch,” said Mr Winkler.
Meantime, the VACC and FCAI continue to call for the LCT to be abolished altogether, with the Victorian body alternatively calling for an increase in the LCT threshold to $75,000.
“VACC was astonished by Mr Swan’s announcement last month,” said the VACC’s senior manager government and public affairs, David Russell, last week.
“Not only did it jump the gun on the Bracks’ Review of the Australian Automotive Industry, but it targeted the only segment of the local vehicle manufacturing industry which is growing or maintaining sales.” “The luxury car tax is a hangover from the old, and outdated, sales tax era when products were taxed at differing rates with a complex and unwieldy regime of formulas and calculations. How can so-called ‘luxury cars’ attract a unique additional tax, when other ‘luxury’ items such as plasma TVs, holidays, and jet-skis do not?” For its part, the FCAI says it will present specific evidence to support its view to the Senate committee inquiry, which closes for submissions in just two weeks on July 7 but is not required to hand down its report until August 26. No dates have been set for hearings.
“It is ill thought-through. We had no consultation. We now have a Senate committee enquiry and it will afford industry, motorists and others affected by the decision the opportunity to put forward the evidence as to what the full impact of this tax increase will be, because it has not been considered by the government,” said Mr McKellar.
“There is a range of things that we’re looking at in weighing the argument. Clearly, one of the issues is the way in which the threshold has not kept pace with changes in the market over a period of time - the fact that there are many more vehicles that are captured by this tax than previously.
“The key issue being singled out there is the fact that many four-wheel drive vehicles are used in rural and regional areas. Here I’m talking about predominantly workhorse vehicles like Toyota’s LandCruiser and Nissan’s Patrol.
“Within three or four years now, if current trends continue, basically every single model of those types of vehicle will be captured in the luxury car tax net. Now it seems very curious to me that those sorts of vehicles would be wrapped up as part of the description as luxury vehicles.
“For many people in rural areas a four-wheel drive is a necessity not a luxury. This is a tax on safety, so to be expecting people in those circumstances to be putting their hands back in their pockets is totally unreasonable.
“I really caution the government against digging into a defensive posture on this. They need to keep an open mind. They are a new government. I think it would be a tragic mistake for them to get off on the completely wrong foot like this and dig in. Having made the wrong decision, not to recognise that and not consider the issue on its merits would certainly be a mistake,” said Mr McKellar.
Further complicating matters for vehicle distributors was Mr D’Ascenzo’s clarification of the LCT changes in relation to quarterly business activity statements.
“To reduce compliance costs for motor vehicle suppliers, the Tax Office will allow them to report the additional luxury car tax in the first business activity statement (BAS) that is due after the law is passed, without incurring additional penalties or general interest charge,” Mr D’Ascenzo said.
“Alternatively, motor vehicle suppliers may choose to account for their additional luxury car tax liability by requesting the Tax Office to amend their BAS for the period in which they originally accounted for their luxury car tax.” Interestingly, less than a day before the ATO and treasury announced its ruling, treasurer Swan was reported as saying the delay in referring the increased LCT legislation to a senate committee inquiry would cost government coffers about $22 million.
This not only implied the higher LCT rate would not be charged retrospectively, but suggests its implementation is considered a fait accompli by government, which shows no signs of capitulating to calls for the abolishment of the punitive tax.
Despite the fact it also applies to locally-built vehicles priced over $57,123, the European Union is reported to have labelled the luxury tax hike and the LCT in general a “non-tariff trade barrier”, a term also employed by some German vehicle importers.
There have also been reports of at least two $1.25 million Rolls-Royce Phantom convertible buyers air-freighting their new cars into Australia, to the tune of about $25,000, in order to save about $60,000 in tax by beating its commencement, and of a BMW M3 customer who has waited 14 months for delivery, but who may now face an extra $8000 LCT bill if it does not arrive in the next week.
GoAuto has also learned that some vehicle importers are considering shipment of luxury cars to Perth, rather than Australia’s east coast, in an effort to fact-track their delivery. Either way, June looks set to become a boom month for luxury vehicle sales.
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