Luxury car tax: the true cost of posh

Anyone considering buying a quality car needs to be aware of the luxury car tax.

At the time of writing this applied to most motor vehicles under two years old if the price to the dealer or his equivalent exceeded $57,466 (including the GST but excluding other government charges).

The tax is imposed at a rate of 33% on the amount by which the price exceeds the threshold after excluding the GST that applies to the excess.

That is, if the excess amount is $11,000, the GST portion would be $1000, which means the luxury tax would be 33% of $10,000, or $3300. The seller adds this amount to the original price to determine the buyer's price.

Theoretically the tax could apply to a used car that is less than two years old, but this would only be a factor if the sale price was higher than the original purchase price.

This is because there is a credit for the luxury tax paid when the car was bought new. In most cases this would more than cover any luxury tax applicable when the car is resold.

One way to avoid the tax is to buy a fuel-efficient car whose original price to the dealer was less than $75,375 (including GST).

For the purpose of this concession, fuel-efficient is defined as fuel consumption of less than seven litres per 100 kilometres. Other vehicles that are exempt include motor homes, campervans and commercial vehicles.

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