The New Luxury Tax in Canada
As of September of 2022, luxury cars, boats, and aircrafts may be subject a 10% to 20% new luxury tax in Canada, depending on their price tag and usage.
This new policy was first proposed in August of 2021, when the Department of Finance Canada published a background paper on the design of a luxury tax titled The Select Luxury Items Tax Act, and it was later included in Bill C-19 and the 2022 Budget Implementation Act, which received Royal Assent on June 23, 2022 and went into effect on September 1, 2022.
The New Luxury Tax in Canada
The Select Luxury Items Tax Act (the “Luxury Tax”) now imposes a new “luxury tax” on the sale, importation, registration or lease of certain cars and personal airplanes worth more than $100,000, as well as certain vessels for personal use worth more than $250,000.
Sedans, sports cars, minivans, and SUVs, which are commonly used as personal vehicles, are now being taxed under the Luxury Tax. The vehicle must have a maximum weight of 3,856 kilograms and a seating capacity of 10 people. While electric cars are subject to the same requirements, motorcycles, ATVs, snowmobiles, motor homes, ambulances, police cars, fire trucks, and military vehicles are exempt.
The Canada Revenue Agency has provided information on the application of the Luxury Tax on certain vehicles such as sedans, coupes, hatchbacks, convertibles, sport utility vehicles, and light-duty pickup trucks priced above $100,000 on the Government of Canada’s website. This information can be found here. But keep in mind that the information in this publication does not replace the law found in the Select Luxury Items Act.
As for aircraft, the Luxury Tax applies to planes, helicopters, and gliders with a maximum capacity of 40 passengers, while commercial aircraft are exempt, and as for boats, the Luxury Tax applies to yachts, sailboats, deck boats, waterskiing boats, and houseboats, while floating homes, ferries, cruise ships, and fishing boats are exempt. Similar to the application of the Luxury Tax to certain vehicles, the primary justification for implementing the Luxury Tax appears to be whether or not particular airplanes and boars are used for personal purposes.
The New Luxury Tax in Canada – How Does it Work?
The Luxury Tax is generally calculated using the taxable amount of the subject items. The Luxury Tax is equivalent to the lesser of 10% of the subject item’s taxable value and 20% of the amount beyond the price.
All other improvements (excluding accessibility modifications), additions, taxes, duties, fees, and amounts paid in relation to delivery or importation will be included in the total price. For the purposes of calculating the GST/HST, the resulting Luxury Tax is added to the cost of the subject items. Consequently, the Luxury Tax is subject to GST/HST.
If you have any questions or concerns about the new Luxury Tax and how it will affect your purchases and sales of certain items, as well as the tax implications of such transactions, give us a call today! 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.