Budget 2021 had announced the introduction of Luxury Tax on the sale or import of certain vehicles, boats, and aircraft. With the Luxury Tax set to take effect as of September 1, 2022, now is the time to buy the luxury goods subject to the tax, before the tax comes into effect. This article will discuss how the Luxury Tax works, as well as the implications to the vendors that may be required to register.
What is the Luxury Tax?
The Luxury Tax applies to new passenger vehicles and aircraft with a retail sales price over $100,000, as well as boats priced over $250,000 (the “Subject Items”). Generally, the Luxury Tax will be equal to the lesser of:
- For vehicles and aircraft: 20% of the amount of the total sale price in excess of $100,000
For boats: 20% of the amount of the total sale price in excess of $250,000; or - 10% of the total sale price.
Certain vehicles, boats or aircraft are excluded from the definition of Subject Items. For example, vans used for transporting goods, commercial fishing vessels, ferries and aircraft used in commercial activities for the carriage of passengers, as well as vehicles clearly marked for policing activities or marked and equipped for emergency medical will be excluded.
The Luxury Tax will be collected and payable by the registered vendor on delivery of the Subject Items to the Canada Revenue Agency (the “CRA”). Additionally, non-registered importers will be required to pay the Luxury Tax on import of Subject Items.
Luxury Tax Registration for Vendors
A business will generally be required to register for the Luxury Tax if it is a:
- Manufacturer;
- Wholesaler;
- Retailer; or
- Importer, and
in the course of its business, it sells or imports certain vehicles, boats or aircraft that would be subject to the Luxury Tax.
The business required to register for the Luxury Tax must indicate the type of Subject Item that it sells or imports. A registered vendor will be able to import Subject Items without the Luxury Tax applying at the time of importation.
Businesses that sell or import the Subject Items are required to register before selling or importing the inventory. These businesses may also need to be registered prior to purchasing inventory of the Subject Items to ensure that these purchases qualify for exemption certificates and are relieved of the Luxury Tax.
GG Observations
If you are thinking of purchasing a new vehicle, boat, or aircraft that will be subject to the Luxury Tax, you should consider making the purchase prior to September 1, 2022. If you are in the business of importing or selling these Subject Items, Grewal Guyatt can help you navigate the complex rules surrounding the Luxury Tax to ensure that you comply and minimize the taxes paid on purchases, sales, and imports. For more information, please contact our tax team.
Authors
Rick Grewal, CPA, CA, TEP
Managing Partner
Contact Rick
Email: rick@grewalguyatt.ca
Direct: (905) 597-1701
Mandeep Khosa, CPA, CA
Partner – Tax
Contact Mandeep
Email: mandeep@grewalguyatt.ca
Direct: (905) 780-3117