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ATO action to reduce the gap

How we support our clients to meet their compliance obligations.

Published 29 October 2023

Luxury car tax (LCT) is paid by:

  • businesses that sell or import luxury cars
  • individuals who directly import luxury cars.

The LCT is imposed only if both the:

  • value of the car exceeds the LCT threshold
  • sale of the car occurs within 2 years of manufacture or importation.

Our data and experience show most people try to comply with their LCT obligations. We aim to make it as easy as possible to help them meet their obligations by providing:

  • up-to-date information on our website
  • specific advice where requested or where the law is unclear.

We focus on those who actively try to avoid their LCT obligations. Some of the behaviours we are most concerned about include:

  • resellers who undercut legitimate dealers on price by evading LCT and GST on luxury car sales
  • entities who attempt to pass off private luxury car purchases, for example, a private car collection as a trading enterprise to fraudulently access LCT and GST benefits
  • dealers or resellers falsely asserting that luxury cars are being held solely as trading stock when the cars are being used frequently for 'extended' test drives, personal use or informally leased or sold.

Our compliance work targets these behaviours by:

  • reviewing new LCT registrants and educating them when they are ineligible to claim LCT refunds
  • letting taxpayers know we are targeting arrangements designed to avoid LCT and highlighting the risks of participating in them
  • increasing our review of dealers accepting inappropriate ABN quoting, which facilitates the avoidance of LCT by entities who are ineligible to quote ABN to defer paying LCT
  • data-matching of luxury car importation information to review the legitimacy of ABN quoted by entities who are outside the system (unregistered) or registered but are ineligible to use the ABN quoting provision
  • stopping and verifying LCT refunds and applying administrative penalties to taxpayers who provide misleading or false information
  • applying anti-avoidance provisions to artificial and contrived arrangements to avoid payment of LCT
  • prosecuting people who undertake fraudulent or criminal activity.

In 2021–22, the ATO established a task force, Operation Protego, to tackle increased fraudulent GST refund claims. The impacts of the fraudulent activities were also seen in other indirect taxes including LCT. The unusual growth in LCT refund claims were made by previously unregistered individual entities through lodgments of activity statements. These activities were detected over 2019–20 to 2021–22 and the largest impact was observed in 2021–22, for which tax gap estimates will not be published until late in 2024. Where detected, the fraudulent claims have been stopped or remediated, with an intensive focus by the ATO currently to recover refunds paid to fraudsters.

 

 

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