The luxury car tax (LCT) gap is the difference between the luxury car tax the ATO expects to collect and what we would have collected if every taxpayer was fully compliant with tax law, also known as the theoretical tax liability.
For the 2020–21 financial year, we estimate a net luxury car tax (LCT) gap of 7.7% or $73 million. In other words, more than 92% of the total theoretical tax liability is expected to be collected. Gross performance for 2020–21 is at 91.5%, compared to the average of around 87% in the previous 5 years. During the year, amendments due to ATO compliance activity have accounted for around 0.8% of theoretical liability, which is below the six-year average of 1.3% for the period of 2015–16 to 2020–21, consistent with the impact of COVID-19 on the level and type of compliance activities undertaken by the ATO.
Compared to 2019–20, the net gap has fallen significantly in 2020–21, as strong demand and price conditions in the luxury car market saw faster growth in the expected tax collections relative to the theoretical liability.
The gap estimates have shown volatility from year to year. Analysis suggests that the size of this gap is sensitive to movements in macroeconomic factors. These include exchange and interest rates, as well as the performance of housing markets. The sensitivity of the LCT gap is further exacerbated by several factors, such as its relatively small tax base and the discretionary nature of luxury car purchases.
This year, there had been revisions in our historical gap estimates to reflect more complete motor vehicle sales data being used in the estimation process. This new data provides more accurate price distributions of new cars sold for estimate years of 2017–18 to 2019–20, which has lead to an increase in the gap estimates for those years. Including new data has also contributed to the increase in the reliability rating for this tax gap estimate.
The key behaviours contributing to the LCT gap include entities who:
- engage in fraudulent schemes to extract the LCT from the sale of a car via incorrect quoting or claiming LCT refunds
- deliberately operate outside the system and are reckless towards their obligation to register for LCT
- erroneously or incorrectly classify imported vehicles to avoid paying LCT
- fail to understand their record keeping and reporting obligations due to lack of understanding the LCT legislation.
|
Element |
2015–16 |
2016–17 |
2017–18 |
2018–19 |
2019–20 |
2020–21 |
|---|---|---|---|---|---|---|
|
Population |
2,132 |
2,139 |
2,129 |
2,210 |
2,433 |
2,795 |
|
Gross gap ($m) |
90 |
44 |
150 |
92 |
118 |
80 |
|
Amendments ($m) |
5.4 |
8.2 |
21.0 |
12.4 |
6.5 |
7.3 |
|
Net gap ($m) |
84 |
36 |
129 |
79 |
112 |
73 |
|
Expected tax collections ($m) |
610 |
676 |
691 |
667 |
640 |
872 |
|
Theoretical liability ($m) |
694 |
712 |
820 |
747 |
751 |
945 |
|
Gross gap (%) |
12.9 |
6.2 |
18.3 |
12.3 |
15.7 |
8.5 |
|
Net gap (%) |
12.2 |
5.1 |
15.8 |
10.6 |
14.9 |
7.7 |
Figure 1 shows the trend in the gross and net tax gap estimates over the same period.
Figure 1: Gross and net LCT gap (percentage), 2015–16 to 2020–21