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28 November 2008, no. 66, 2008-09, ISSN 1328-8091
Tax Laws Amendment (Luxury Car Tax-Minor Amendments) Bill 2008
Michael Priestley Economics Section
Contents
Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Fall in motor vehicle sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Manufacturing slowdown . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Financial implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Main provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Schedule 1 - Luxury Car Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Concluding comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2 Tax Laws Amendment (Luxury Car Tax-Minor Amendments) Bill 2008
Tax Laws Amendment (Luxury Car Tax-Minor Amendments) Bill 2008
Date introduced: 25 November 2008
House: House of Representatives
Portfolio: Treasury
Commencement: Sections 1 to 3 of the Bill and Schedule 1, items 1 to 7, Royal Assent. Schedule 1, item 8, 3 October 2008.
Links: The relevant links to the Bill, Explanatory Memorandum and second reading speech can be accessed via BillsNet, which is at http://www.aph.gov.au/bills/. When Bills have been passed they can be found at ComLaw, which is at http://www.comlaw.gov.au/.
Purpose
The Bill amends the A New Tax System (Luxury Car Tax) Act 1999, the Taxation Administration Act 1953, and the Tax Laws Amendment (Luxury Car Tax) Act 2008 to ‘ensure that amendments to the Tax Laws Amendment (Luxury Car Tax) Act passed earlier this year operate as intended’.1 It appears that the current uncertainties relate to the effect of motor vehicle financing arrangements on these amendments.
Background
Changes to the luxury car tax (LCT) were contained in the Tax Laws Amendment (Luxury Car Tax) Bill 2008 introduced into the Parliament on 26 May 2008.2
The Bill was passed by the Senate on 24 September 2008 with amendments which were agreed to by the House of Representatives.3 The Tax Laws Amendment (Luxury Car Tax) Act 2008 received Royal Assent on 3 October 2008 and commenced on that date.
1 The Hon Chris Bowen MP, Assistant Treasurer, ‘Second Reading Speech: Tax Laws Amendment (Luxury Car Tax-Minor Amendments) Bill 2008’, House of Representatives, Debates, 25 November 2008, p. 6.
2 See: Bills Digest No. 131 2007-08, Tax Laws Amendment (Luxury Car Tax) Bill 2008, http://www.aph.gov.au/library/pubs/bd/2007-08/08bd131.htm
3 House of Representatives, Debates, 24 September 2008, p. 8404.
Warning:
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments.
This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.
Tax Laws Amendment (Luxury Car Tax-Minor Amendments) Bill 2008 3
The basis for the increase in the rate of LCT from 25 per cent to 33 per cent was to protect the market pricing of locally produced vehicles and to re-invest the additional revenue into the local industry.4
LCT as set out in the new Act is based on a price threshold and other factors, including fuel consumption, usage and the method of indexing the LCT threshold.
However, since the amendments were passed economic conditions, and in particular the global financial crisis and a manufacturing slowdown, have resulted in a fall in vehicle sales and a revision of the Government’s estimates of the amount of revenue that will be raised by the increase in LCT.
Fall in motor vehicle sales
Vehicle sales for October show an 11.4 per cent fall compared to the same month in 2007 (see table below). According to the Federal Chamber of Automotive Industries, the fall reflects the broader slowdown in Australia and globally, as well as reduced access to car finance.5
4 Bills Digest No. 131 2007-08, Tax Laws Amendment (Luxury Car Tax) Bill 2008, p. 8.
5 See Federal Chamber of Automotive Industries, “Global Financial Crisis Impacts New Vehicle Sales”, 6 November 2008, http://www.fcai.com.au/news/2008/11/192/global-financial-crisis-impacts-new-vehicle-sales-. For October 2008 sales figures, see http://www.fcai.com.au/sales
Warning:
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments.
This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.
4 Tax Laws Amendment (Luxury Car Tax-Minor Amendments) Bill 2008
Sales Volumes Month
October
YTD Variance +/- Vol. & %
2008 2007 2008 2007 MTH YTD MTH YTD
Passenger 45,978 53,336 508,050 531,102 -7,358 -23,052 -13.8 -4.3
SUV 14,357 17,748 167,300 163,360 -3,391 3,940 -19.1 2.4
Light Commercial 15,686 14,537 158,514 147,211 1,149 11,303 7.9 7.7
Heavy Commercial 3,084 3,668 30,173 29,978 -584 195 -15.9 0.7
Total Market 79,105 89,289 864,037 871,651 -10,184 -7,614 -11.4 -0.9
Month YTD Variance +/- Vol. & %
Light 9,972 11,150 107,415 105,693 -1,178 1,722 -10.6 1.6
Small 17,339 19,228 196,217 194,416 -1,889 1,801 -9.8 0.9
Medium 7,038 7,952 74,092 76,057 -914 -1,965 -11.5 -2.6
Large 8,956 11,170 99,694 117,778 -2,214 -18,084 -19.8 -15.4
Upper Large 302 762 4,916 7,934 -460 -3,018 -60.4 -38.0
People Movers 1,118 1,283 11,098 13,692 -165 -2,594 -12.9 -18.9
Sports 1,253 1,791 14,618 15,532 -538 -914 -30.0 -5.9
SUV Compact 6,791 8,089 73,037 75,324 -1,298 -2,287 -16.0 -3.0
SUV Medium 5,382 6,839 64,896 61,215 -1,457 3,681 -21.3 6.0
SUV Large 1,001 753 13,169 10,049 248 3,120 32.9 31.0
SUV Luxury 1,183 2,067 16,198 16,772 -884 -574 -42.8 -3.4
x 264 215 2,989 2,067 49 922 22.8 44.6
Vans 1,856 1,686 21,204 16,740 170 4,464 10.1 26.7
PU/CC 4X2 6,261 5,975 62,404 57,597 286 4,807 4.8 8.3
PU/CC 4X4 7,192 6,555 70,874 69,643 637 1,231 9.7 1.8
Trucks 2.5-3.5 GVM 113 106 1,043 1,164 7 -121 6.6 -10.4
Heavy Commercial 3,084 3,668 30,173 29,978 -584 195 -15.9 0.7
Total Market 79,105 89,289 864,037 871,651 -10,184 -7,614 -11.4 -0.9
As a result of falling vehicle sales estimates of LCT revenue have been revised down by $20 million in each of the forward estimates.6
Manufacturing slowdown
The fall in vehicle sales coincides with a manufacturing slowdown and a fall in manufacturing employment.
Manufacturing activity, as measured by the Australian Industry Group- PricewaterhouseCoopers Performance of Manufacturing Index, fell in October 2008 to 40.4 points, the lowest recorded level since the index began in 1992. This followed four
6 Senate, Questions Without Notice, 25 November 2008, p. 16.
Warning:
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments.
This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.
Tax Laws Amendment (Luxury Car Tax-Minor Amendments) Bill 2008 5
successive months of decline and confirms that manufacturing output is contracting (the 50.0 level in the index separating expansion from contraction).7
Critically the fall in manufacturing production reflects a continuing decline in new orders, slower domestic economic growth and cost pressures.8
According to the index, manufacturing employment fell in most sectors with wages growth slowing in October.
Financial implications
According to the Explanatory Memorandum, the Bill will have no financial impact.9
Main provisions
Schedule 1 - Luxury Car Tax
Items 1 to 4 of Schedule 1 to the Bill propose to clarify the entity bearing the LCT for the purpose of claiming the refund.
Item 5 ensures that the date of operation is from 1 July 2008.
Item 6 amends the Taxation Administration Act 1953 to clarify that LCT refunds are to be paid directly to the claimant.
Item 7 ensures that the date of operation of this amendment is from 1 July 2008.
Item 8 amends the Tax Laws Amendment (Luxury Car Tax) Act 2008 so that contracts for the taxable supply or taxable importation of a vehicle that are entered into before 7.30 pm on 13 May 2008 are relevant for determining the 25 per cent LCT. Item 8 commences immediately after the commencement of the Tax Laws Amendment (Luxury Car Tax) Act 2008 on 3 October 2008.
7 See Australian Industry Group-PricewaterhouseCoopers Performance of Manufacturing Index October 2008, http://pdf.aigroup.asn.au/economics/pmi/7174_PMI_Oct08.pdf 8 Anecdotal evidence suggests cost pressures from low cost emerging economies. The decision by South Pacific Tyres, a subsidiary of the US Goodyear Tyre and Rubber Co., to
close its operations reflected these competitive pressures. See “South Pacific Tyres to close at end of the year”, The Australian, 26 June 2008, http://www.theaustralian.news.com.au/story/0,25197,23925022-5006785,00.html 9 Tax Laws Amendment (Luxury Car Tax-Minor Amendments) Bill 2008, Explanatory
Memorandum, p. 5.
Warning:
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments.
This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.
6 Tax Laws Amendment (Luxury Car Tax-Minor Amendments) Bill 2008
Concluding comments
The outlook for Australian vehicles sales for 2009 is not strong and the Government has already revised downward its estimate of revenue from the LCT. The recent and rapid depreciation of the Australian dollar will further impact vehicle sales. In certain areas the luxury car market does not seem to be on the decrease, for example hybrid luxury vehicles and SUV diesel models, but this does not necessarily guarantee that the market overall will not be affected by an economic slowdown.
Warning:
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments.
This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.
Tax Laws Amendment (Luxury Car Tax-Minor Amendments) Bill 2008 7
Warning:
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments.
This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.
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