Changes to luxury car tax, GIC deductions pass both houses

Amendments that will update the definition of a fuel-efficient car for the purposes of the luxury car tax (LCT) and align the indexation rates for LCT thresholds were passed by the Senate on Wednesday (26 March).

The Treasury Laws Amendment (Tax Incentives and Integrity) Bill 2024 updates the definition of a fuel-efficient car by reducing the maximum fuel consumption for a car to be considered fuel-efficient for the LCT to 3.5 litres per 100 kilometres from the current 7 litres per 100 kilometres.

Under the changes, the higher threshold applied to fuel-efficient cars for the luxury car tax would apply to fewer car types.

For the 2024–25 financial year, the luxury car tax threshold for fuel-efficient vehicles is $91,387, while the threshold for other vehicles is set at $80,567.

The bill was referred to the Senate Economics Legislation Committee at the end of November.

In its final report handed down in January, the committee noted that the fuel efficiency of internal combustion engine vehicles had improved since the introduction of the ‘fuel-efficient car’ definition in 2008.

“The current definition of 7 litres of fuel consumption, or less, per 100 kilometres, is too high and does not reflect contemporary notions of a fuel-efficient car,” Senator Jess Walsh, committee chair, said.

“The committee agrees that a tightening of the definition would help ensure that only electric vehicles and those that are at least partially electrified, such as plug-in hybrid electric vehicles (PHEVs), will receive the concessional fuel-efficient threshold for the luxury car tax.”

Automotive industry associations criticised the amendments during consultation on the bill and called for the luxury car tax to be scrapped entirely.

The Federal Chamber of Automotive Industries (FCAI) previously labelled the luxury car tax as an “obsolete tax” and urged the government to abolish it.

“The luxury car tax served a historic purpose, having originally been created as a means of protecting Australia’s local vehicle manufacturing industry,” it said.

“Given manufacturing in Australia ceased in 2017, the luxury car tax and its purpose has become redundant and should be scrapped.”

Scrapping deductions for GIC and SIC

The bill also contained amendments that will deny deductions for general interest charge and shortfall interest charge.

Taxpayers will be restricted from claiming deductions for general interest charge (GIC) and shortfall interest charge (SIC) incurred on or after 1 July 2025, after Parliament passed amendments on Wednesday (26 March).

Under the amendments, the Commissioner will still have the discretion to remit interest charges where it is fair and reasonable to do so, taking into consideration the circumstances which led to the delayed payment of tax liabilities or the tax shortfall.

Labor has previously said the changes will enhance incentives for all entities “to correctly self-assess their tax liabilities and pay on time, and level the playing field for individuals and businesses who already do so”.

The bill also extends the period within which the Commissioner must notify a taxpayer of their decision to retain a refund amount arising from a BAS or another notification under the BAS provisions for verification of information.

It extends the mandatory notification from the current 14 days to 30 days.

The change is aimed at strengthening the ATO’s ability to combat fraud during periods of increased risk of fraudulent activity.