Oz Auto Dealers in Quandary Over Luxury-Car Tax

The teething problems for the new Australian Labor government continue, with luxury-car dealers saying they don’t know whether to start collecting increased luxury-car taxes on July 1.

Labor in May used its first budget to target the wealthy by increasing the tax on luxury cars worth more than A$57,000 ($54,000) to 33% from 25% as of July 1.

But the Senate delayed a decision on legislation implementing the change and referred the tax increase to a committee that will not report its findings until the end of August.

No other products in Australia face a luxury tax.

Now dealers are getting different signals from the Australian Taxation Office (ATO) and Treasurer Wayne Swan.

The ATO told Federal Chamber of Automotive Industries CEO Andrew McKellar the tax would be collected retroactively to July 1 after the Senate eventually passes the legislation.

“The ATO seems to be saying that if the bill passes, the dealers will be retrospectively liable for the tax,” McKellar tells The Australian newspaper.

But Swan appears on a different page, saying the Senate’s delay of the legislation is an act of economic vandalism because the budget would lose A$22 million ($21 million) over the 3-month delay.

BMW says its dealers won’t charge tax until official.

Swann’s comment indicates the increased tax will not be collected until the date the legislation becomes law.

More confusion followed as a Swan spokesman told reporters the legislation has a start date of July 1 and the ATO would advise the industry how to make provision for that start date.

As the row built, Swann was busy in Beijing talking to the Central Party School of the Communist Party of China about a modern relationship with China.

Back in Australia, the ATO was saying the tax would be charged on cars delivered after July 1 – even if they had been ordered and paid for months previously.

Dealers say the long lead times on the delivery of luxury vehicles means buyers will be paying the increased tax on cars ordered and at least partially paid for before the tax increase was announced.

McKellar says car dealers are in an impossible situation.

“Do they start charging the tax now, even though there is no legal basis for them to do so?” he asks. “Do they not charge it and then risk having to get the money back from customers retrospectively? They really need some urgent clarification of where they stand.”

The chamber has welcomed the decision to refer the legislation to a Senate committee.

“This provides the automotive industry and the motoring public with the opportunity to show why this unnecessary and punitive tax increase should not go ahead,” McKellar says.

“There was no consultation on this measure prior to its announcement in the budget. But it has become clear this tax increase would have many significant and unintended adverse consequences for motorists, road safety and the environment.”

The chamber says in a statement a major issue for the Senate to consider is that the threshold at which the tax is applied has not kept pace with changes in the market.

“More and more ordinary, family vehicles are being captured by this unfair tax, and if the trend continues we will see many more motorists paying more than they should for their new car,” McKellar says.

The tax hike also fails acknowledge that many of the targeted vehicles are the first to introduce important new environmental and safety technologies into the Australian vehicle market, the chamber says.

“This is indeed a tax on family safety and a tax on new environmentally friendly technologies at a time when these issues are becoming increasingly important,” McKellar adds. “Safety on the road is a necessity, not a luxury.”

Audi Australia Pty. Ltd Managing Director Joerg Hofmann says Audi will not raise the tax from July 1 because there is no legal basis to do so.

Mercedes-Benz Australia/Pacific Pty. Ltd. calls the situation anarchic and tells its dealers the tax is staying at 25% for now.

“We are reluctant to start charging our customers a tax that is not yet law and might not become law,” a spokesman says.

BMW Group Australia echoed the comment, saying it was pointless to start collecting a tax that doesn’t exist and might never exist.