The ATO has issued an alert warning taxpayers that it is investigating certain arrangements where entities on-sell luxury cars without remitting the requisite luxury car tax amount. This applies to those selling luxury cars in the ordinary course of business in any structure (i.e. company or sole trader), as well as those that sell a luxury car to an employee, an associate, or an employee of an associate as a one-off transaction. Remember, for the 2021-22 financial year, all non-fuel efficient vehicles over $69,152 are considered to be luxury cars.
The ATO is currently investigating arrangements where a chain of entities that progressively on-sell luxury cars improperly obtain LCT refunds and evade remitting LCT to the ATO. Usually, in this arrangement, one of the entities will claim a refund of LCT while creating a consequential liability to another entity in the supply chain. Following on from that, one or more of the participating entities down the chain, referred to as a “missing trader”, will not correctly report and pay their purported LCT liabilities to the ATO. These entities will then be liquidated to thwart ATO compliance or recovery action.
While the primary concern is the evasion of LCT, these arrangements also concern the ATO.
Being aware of these potential illegal practices, the ATO notes that it is engaging with taxpayers to ensure that all parties have correctly met their LCT, GST and income tax obligations. It warns that it has sophisticated systems in place to identify high risk LCT refunds which will be withheld pending adequate reviews. Furthermore, in high risk cases, the ATO has said it will scrutinise contractual obligations that arise under each sale in the supply chain to ensure compliance.
Businesses and individuals that sell cars in the course of their business over a certain threshold (the luxury tax threshold) are subject to luxury car tax (LCT). This is a requirement if your business is registered or required to be registered for GST. LCT doesn’t just apply to instances where a dealer is selling a car to an individual or a business; it also applies in instances where a business sells or trades in a car that is a capital asset. If you’re unsure about whether you need to pay LCT, it’s important to consult with a small business tax accountant who can advise you accordingly and help you with other business taxation services as required.
For the 2021-22 financial year, the luxury car threshold is $79,659 for fuel efficient vehicles and $69,152 for all other vehicles. This means that if your business buys a car with a GST-inclusive value above these thresholds, you are liable to pay LCT except in certain circumstances.
If you’re the seller of a luxury car, whether or not it is within your usual course of business, you’re required to charge LCT to the recipient and report the associated LCT amount in your BAS. You will also need to remit the requisite amount to the ATO by the due date for BAS payment. You cannot avoid LCT by selling a luxury car to an employee, associate or an employee of your associate for less than the market value, or by giving it away for no consideration. The LCT value of the car in that instance will always be the GST-inclusive market value.
Make sure you don’t fall afoul of the ATO. If you run a business and have disposed of cars to your employees or associates for below the market value, Alexander Bright can help you determine whether luxury car tax was applicable in those cases. For this and other expert guidance on tax issues, or to find out about our accounting services for small business and medium business clients, contact our accountant in Melbourne today.