Technical Update:

LCT Calculation changes - effective 1 March 2014

18 February 2014

Mark Ward , National Leader, Automotive, Partner, Business Services |


As per our earlier correspondence, the ATO has formed the view that some manufacturer incentives will form part of the 'price' paid for a car, and accordingly should be added to the sale price to the customer in order to calculate if the car is above the threshold, and on which value the LCT is to be calculated.

We understand the ATO will release in March some communication in respect to the changes, however we expect that this will be more in the nature of confirming the application of the legislation rather than any guidance on how dealers might approach it from a practical perspective.


We are hopeful that this change may strengthen the case to abolish the LCT, however in the meantime dealers need to remain compliant.

BDO has set out the following scenarios which we hope may provide a practical solution to ensure this change does not represent a risk to gross.

Vehicle cost excl GST 75,000 75,000 75,000
Accessory cost excl GST 3,500 3,500 3,500
Manufacturer incentive excl GST 4,000 4,000 4,000


  To 28 Feb 2014 Recommended from 1 March 2014 Do not change post 1 March 2014
Vehicle Price 80,000 84,400 80,000
Accessories 5,000 5,000 5,000
Sale Price (incl GST) 85,000 89,400 85,000
Add LCT @ ((Consideration - $60,316) x 10/11) x 33% 7,405 8,725 7,405
Total Sale Price (incl GST and LCT) 92,405 98,125 92,405
Note - Includes GST 7,727 8,127 7,727
Sale Price 92,405 98,125 92,405
Less Deposit (2,000) (2,000) (2,000)
Less Trade  0 0 0
Less Manufacturer Incentive/Discount 0 (4,000) 0
Net Payable 90,405 92,125 90,405


Total Sale Price 92,405 98,125 92,405
Less Vehicle cost (75,000) (75,000) (75,000)
Less Accessories cost (3,500) (3,500) (3,500)
Less GST (7,727) (8,127) (7,727)
Less LCT (7,405) (8,725) (7,405)
Less LCT (on manuf incentive, not recovered from customer)     (1,320)
Add Manufacturer incentive 4,000 0 4,000
Gross Profit (excluding Holdback) 2,773 2,773 1,453
    (A) (B)

Note the difference between (A) and (B) of $1,320 represents 33% of the manufacturer incentive received
For the purposes of the above we have not included stamp duty and CTP, but these items should be inconsequential to the approach. Note also that the example uses the threshold for cars other than fuel efficient cars which have the higher threshold of $75,375.


BDO's view is that dealers will need to increase the vehicle sale price before LCT, by the GST inclusive amount of the relevant manufacturer incentive/s, which will then be offset by a credit in the settlement terms by the GST exclusive value of the manufacturer incentive. The net payable by the customer increases under this approach, only to be the additional LCT and GST which needs to be remitted. In effect this approach would have dealers recognise the manufacturer incentive on the contract in order to recover the additional LCT, whereas current practice is that they occur outside of disclosure on the contract.

We note the following:

  • This approach ensures the customer pays the additional LCT, otherwise gross profit will be reduced effectively by 33% (LCT rate) of the incentive
  • Dealers may prefer to disclose the amount in the payment terms as a discount rather than a manufacturers incentive
  • The manufacturers incentives, which are to be included as part of the sale price for the purposes of calculating LCT are those which are not considered by the ATO to be a reduction of the purchase price (from the manufacturer). For example, a bonus that is paid by the manufacturer as a result of selling a car to a customer. While the distinction is not clear at this stage we believe guidance can be taken from the recent Court case to the extent that the ATO considered Ford 'retail target incentive', Subaru 'wholesale target incentive' and Holden 'transit/interest protection payments' to be a discount on the purchase price of the car, whereas Toyota fleet and run out model support bonuses were not. Note also that holdback is considered by the ATO to be a reduction in the purchase price
  • We believe that manufacturers will look to consider changing the nature of the incentives in the future such that they are more likely in the nature of a reduction of the purchase price
  • This change is not the result of new legislation, rather it represents the ATO having crystallised, as a result of the recent Court case, their understanding regarding the nature of many incentives and accordingly, how they should be treated under existing legislation
  • We acknowledge that some dealers may not move initially to increase the sale price which may put them at a competitive advantage, however those dealers will either achieve lower grosses or be non compliant with the ATO's required treatment.


Should you have any queries regarding this change, including which specific incentives it will apply to, please do not hesitate to contact BDO's Automotive contacts or your usual BDO adviser.