Canada’s Proposed New Luxury Tax

The federal government has suggested a new luxury tax on some luxury products such as passenger vehicles, aircraft, and personal boats in its 2021 budget. If approved, the federal government will put this new tax into place effective January 1, 2022.

The budget proposal would impose a luxury tax on automobiles and aircraft with a purchase price of more than $100,000, and new boats with a purchase price of more than $250,000.

The tax is calculated as the lesser of:

• 20% of the retail sale price above $100,000 for cars and aircraft; $250,000 for boats; or
• 10% of the retail sale price of the luxury car, boat, or aircraft.

What is considered a luxury good for purposes of the new tax?

A new term “Select Luxury Goods” is being introduced, It’s likely that this term will eventually subject additional goods to the luxury tax. For the time being, Select Luxury Goods include the following:

• Aircraft – All new (manufactured after 2018) aircraft including any airplane, helicopter, or glider with a maximum carrying capacity of less than 40 seats (this includes corporate aircraft) will be subject to the tax. Aircraft typically used in commercial activities, such as those equipped for the carriage of passengers or designed exclusively for cargo flights, would be excluded.
• Luxury Vehicles – All new (manufactured after 2018) passenger vehicles typically suitable for personal use including coupes, sedans, station wagons, sports cars, passenger vans, and minivans equipped to accommodate less than 10 passengers, SUVs, and passenger pick-up trucks would be considered luxury vehicles for purposes of the new tax. Motorcycles and certain off-road vehicles, such as all-terrain vehicles and snowmobiles, racing cars (i.e., vehicles that are not street legal and are owned solely for on-track or off-road racing), and motor homes are not considered to be caught by the scope of the luxury tax. Similarly, ambulances, construction, and farm vehicles would also fall outside the scope of the tax.
• Boats – All new (manufactured after 2018) boats designed for leisure, recreation, or sport such as a yacht, a houseboat, or any sailboat or motorboat that has a cabin with sleeping amenities are considered luxury boats for purposes of the new tax. Floating homes, commercial fishing vessels, ferries, and cruise ships would be excluded.

How might this affect your insurance?

From an insurance perspective, in the event of a total loss and the need to replace your luxury aircraft, vehicle, or boat, the agreed value in your policy will not be enough to cover the purchase. We recommend all clients who may be affected by this tax to review their agreed values for coverage.

How do I calculate the luxury tax?

As per BDO Canada, the tax is calculated as the lesser of:

• 20% of the retail sale price above threshold (the threshold being $100,000 for cars and aircraft; $250,000 for boats); or
• 10% of the retail sale price of the luxury car, boat, or aircraft.

The tax would apply at the point of purchase if the final sale price paid (including applicable duties, charges, and taxes other than the GST/HST or provincial sales tax) is above the threshold.

Modifications made within 12 months of purchase may also be subject to self-assessment of the tax where certain conditions are met. Accessibility modifications are generally excluded.

When will the luxury tax take effect?

If approved, the luxury tax will be imposed on items supplied or imported on or after January 1, 2022. However, if the vendor of the luxury good and the non-registered person entered into a bona fide written agreement for the sale of the luxury good prior to April 20, 2021, the tax will not apply. Prior to the initial importation or delivery of a luxury good, registration will be necessary.

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