In August, the Finance Department released a backgrounder and technical paper discussing the details of the luxury tax that was originally mentioned in the Liberal’s 2018 election campaign, which was then proposed in the most recent election.

The luxury tax would be applicable to:

  • The sale or importation of new vehicles and aircraft with a value in excess of $100,000, and
  • New boats with a value in excess of $250,000 at the time of their sale or importation into Canada.

Certain parts of these sales will be excluded from the luxury tax if it can be shown that they are designed for commercial use.

The value of the luxury vehicle, aircraft or boat for the purpose of determining the application of the proposed luxury tax would be calculated including modifications, fees, charges and duties but excluding GST/HST. How does that work?

Well, the GST/HST would be paid on the total value of the purchase, including the assessed luxury tax. The luxury tax would be assessed as the lesser of 10% of the total value, or 20% of the value in excess of the luxury tax threshold – which is $100,000 for cars and aircraft and $250,000 for boats.

Vendors registered under the luxury tax regime would be required to collect and remit the luxury tax. Registered vendors would include persons who, manufacture, wholesale, retail or import vehicles in the relevant price range.

Sales from one registrant to another are generally exempt, subject to appropriate certification by the purchasing registrant. Where non-registered individual imports for their own use, they would be required to remit the luxury to the Canada Border Services Agency.

A few important items to note:

  • Finance will require individuals to self-assess luxury tax on any modifications made to the luxury vehicle, aircraft or boat within 12 months of purchase.
    • Excluding modifications made for accessibility (i.e. wheelchair ramp).
  • Where a vehicle, aircraft or boat is leased, the lessor is required to pay the luxury tax.
  • Penalties for false declarations are proposed at the greater of $1,000 or 50% of the luxury.
  • The details are short on how the new tax will be administered.
    • It is unclear how CRA will register a person under the luxury tax and what reporting systems will be used. There is also no mention as to whether the thresholds will be indexed for inflation.
  • The new luxury tax would be applicable for deliveries of goods beginning January 2022 unless a bona fide sales arrangement was entered prior to April 20, 2021.

As more details arise, we will be sure to share them with you!