Canada’s Luxury Goods Tax
On August 10, 2021, the Government of Canada announced that it would be introducing a new tax on Select Luxury Goods (also known as the Luxury Tax), which was planned to come into effect on January 1, 2022. The Luxury Tax’s purpose was to ensure tax fairness by having those Canadians who could afford to purchase luxury goods pay extra tax on select items that they purchase.
The Luxury Tax applies to deliveries in Canada by way of sale or other arrangements of new luxury cars and aircrafts with a retail price of over $100,000 and new boats over $250,000. The definition of deliveries of goods includes importations of these goods, but does not apply to leases of the same cars, aircrafts, or boats. The Luxury Tax was expected to be calculated according to the following thresholds:
- For boats priced over $250,000, at the lesser of 10% of the total price of the boat and 20% of the total price above 250,000; and
- For vehicles and aircrafts priced over $100,000, at the lesser of 10% of the total price of the vehicle or aircraft, and 20% of the total price above $100,000.
Importantly, the Luxury Tax was expected to not be applicable for transactions occurring between persons that were registered with the Canada Revenue Agency under the new Luxury Tax regime, like manufacturers, wholesalers, and retailers of these selected goods.
The Luxury Tax would, however, be applicable if the select good is delivered within or imported to Canada by a person that is not registered under the Luxury Tax regime, such as consumers that purchase the goods for their personal use and enjoyment. In these cases, the responsibility for paying the Luxury Tax and filing the periodic Luxury Tax return would rest with the registered person that delivers the select good to the non-registered person.
On March 11, 2022, the Department of Finance Canada announced new changes to the Luxury Tax proposal after much consultation with stakeholders. Two new provisions were added to the draft legislative proposals:
- Relief is proposed to be provided to any after-sale improvements that are made to the vehicles, aircrafts, or vessels purchased below the price threshold; and
- Relief is proposed to be expanded for those aircrafts where qualifying flights were conducted in the course of a business with a reasonable expectation of profit.
If Parliament is to approve of these draft legislative proposals, the new Luxury Tax would come into effect on September 1, 2022.
If you have questions or concerns about this new Luxury Tax and how it would affect your purchase of select goods, please feel free to contact us! We are here to help.
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.