Luxury car tax ute loophole costing the government $250 million

Lenience towards large, American-style utes, is costing the government hundreds of millions of dollars due to a loophole in our tax policy.

Leading policy think tank, The Australia Institute, released a report revealing that in 2023, the government missed out on approximately $250 million in tax due to a loophole in the Luxury Car Tax, which was first introduced back in 2000.

As a result, buyers of large utes like the Ford F-150, Ram 1500 and Chevrolet Silverado, can avoid paying the LCT “regardless of if the vehicles are used for work, recreation or just commuting”.

The report appeals to the Australian government to remove the LCT exemption for utes, highlighting that the LCT doesn’t affect the majority of utes that are used for “legitimate commercial purposes rather than personal luxuries”.

According to the Australian Taxation Office, the LCT only applies to new cars that cost more than $80,567 as of the 2024-2025 financial year. This was an increase from $71,849 to $76,950 when the financial year changed from 2022-23 to 2023-24. During this time most full-sized utes sat higher than the LCT at the time, which meant that every ute sold amounted to thousands of missed tax dollars.

The Australia Institute’s methodology is conservative and the figure it estimated landed at roughly $321 million, being trimmed down to “more than $250 million” to provide a healthy margin of error. The report also stated that about 75 per cent of the total ‘avoided taxes’ that amounted to $250 million were comprised of full-sized utes like Rams and Silverados.

As an example, the report compares the 2024 Mercedes-Benz E350 EQ Hybrid sedan, which costs $133,370 before on-road costs, with the 2024 Chevrolet Silverado 1500 ZR2 Ute, which costs $138,000. With the LCT, the Mercedes would have to pay an additional $15,841, which would make it $11,211 more expensive than the Chevrolet ute.

The tax exemption reduces the price of utes compared to other expensive cars, including fuel-efficient vehicles. In turn, it essentially incentivises buyers to choose larger, less fuel-efficient cars.

“These vehicles are damaging roads, reducing safety, and increasing emissions, yet they receive a significant tax break,” said Rod Campbell, Research Director at the Australia Institute.

The report noted that there was an increase in American utes between 2022 and 2023, at more than 21 per cent, however, sales may be plateauing as sales declined by 11 per cent in the first half of 2024 compared to the same period last year.

The Australia Institute proposes losing the tax loophole for ‘luxury utes’, but not for any tax exemptions for utes that are actually being used for commercial purposes.

The report states that other policies have contributed to the increase in expensive, non-environmentally friendly utes on the road including the Fringe Benefits Tax.

The “toad and parking regulations, the under-pricing of road damage and carbon emissions and the now-expired Morrison Government’s ‘Temporary Full Expensing’ and the ‘Loss Carry Back’ tax offset” as encouraging Australians to purchase large utes rather than smaller or more efficient cars.

“The Australian public is subsidising big, dumb utes by hundreds of millions of dollars each year,” said Mr Campbell.

“These vehicles are damaging roads, reducing safety and increasing emissions, yet they are given a massive tax break.

“Removing the luxury car tax exemption will not affect most ute drivers, particularly tradies.

“Instead it targets those buying large luxury vehicles, worth sometimes hundreds of thousands of dollars, for personal use.”

Mr Campbell says it doesn’t make sense that the government is essentially encouraging more polluting cars and pointed out that the cost of subsidising them outweighs the costs of some more environmentally conscious policies.

“Economics 101 says that governments should tax things they want less of, and subsidise things they want more of, and it is stunning that the Australian Government seems to want more big, dumb utes.

“This tax break for luxury utes costs more than ten times the Government’s fund for assisting the states to construct or upgrade bicycle paths, the Active Transport Fund.

“Big utes impose considerable costs on society, whether it’s safety concerns or the impact on our roads and climate. Removing the luxury car tax exemption for these vehicles is a good first step in accounting for these costs.”