Luxury Car Tax and Its Impact on FBT Cost Base

Luxury Car Tax (LCT) is a critical consideration in the context of Fringe Benefits Tax (FBT), especially when dealing with high-end vehicles. The question arises: does the luxury car tax get included in the cost base for FBT purposes?

1. Understanding Luxury Car Tax (LCT)

Luxury Car Tax is a tax levied on vehicles that exceed a certain value threshold. In Australia, for example, LCT applies to cars priced above the threshold amount set by the government, which can change annually. This tax is designed to capture a portion of the value of high-end vehicles and ensure that luxury goods contribute to the tax system.

2. FBT Cost Base and LCT

Fringe Benefits Tax is a tax on non-cash benefits provided by employers to their employees. When an employer provides a luxury car as a fringe benefit, the cost base for calculating FBT includes several components. These typically include:

• Purchase Price: The amount paid for the vehicle.
• Running Costs: Expenses related to the operation and maintenance of the car.
• Depreciation: The decrease in value of the vehicle over time.

3. Does LCT Affect FBT Cost Base?

The key issue is whether Luxury Car Tax should be included in the cost base for calculating FBT. According to Australian taxation law, LCT is not included in the cost base for FBT purposes. The FBT cost base is calculated using the price of the car excluding the LCT amount.

4. Why Is LCT Excluded?

The exclusion of LCT from the FBT cost base is based on the principle that FBT is calculated on the benefit provided to the employee, not on the tax paid on the vehicle. Including LCT in the FBT cost base would effectively lead to double taxation, as the tax on the vehicle is already accounted for separately through LCT.

5. Practical Implications for Employers

Employers need to be aware that while calculating the FBT liability for luxury cars, they should not include LCT in the cost base. This ensures that the FBT calculation remains accurate and reflects only the true cost of the benefit provided to the employee.

6. Example Calculation

To illustrate, let’s consider a luxury car with the following details:

• Purchase Price: $80,000
• Luxury Car Tax Rate: 33% (for amounts exceeding the threshold)
• Threshold Amount: $70,000
• LCT Paid: (80,000 - 70,000) x 33% = $3,300
• FBT Cost Base (Excluding LCT): $80,000

7. Conclusion

In summary, Luxury Car Tax is not included in the FBT cost base. Employers should calculate FBT based on the purchase price of the car excluding the LCT amount to ensure compliance with taxation regulations and avoid unnecessary taxation complications.