The New Luxury Tax in Canada

As part of the 2021 Federal Budget, the Government of Canada proposed the introduction of a new luxury tax in Canada on the sale of certain new luxury cars, aircraft, and boats. On September 1, 2022, the Select Luxury Items Tax Act (the Luxury Tax Act), a part of Bill C-19, came into force.

What is the Luxury Tax in Canada and what items are subject to it?

The Luxury Tax Act now imposes a new "Luxury Tax" in Canada on the sale, lease or import of certain vehicles and aircraft worth more than $100,000, as well as certain vessels or boats that are worth more than $250,000. The items subject to tax are discussed in more detail below:

Vehicles

• Most passenger motor vehicles manufactured after 2018 that are equipped to accommodate 10 or fewer passengers and have a gross vehicle weight rating of 3,856 kilograms or less. Exceptions apply to certain recreational vehicles, emergency vehicles, military vehicles, and any other vehicle with a seating capacity for more than 10 individuals

Aircraft

• Any aeroplane, helicopter, or glider manufactured after 2018 that has a maximum capacity of 40 passengers. Exemptions include commercial aircraft, military aircraft, and cargo aircraft.

Vessels

• Any boat designed for leisure, recreation, or sporting activities manufactured after 2018 (i.e yachts, sailboats, deck boats, waterskiing boats etc.) Exemptions are available for certain types of boats (including cruise ships and boats equipped for commercial use).

How is the Luxury Tax in Canada calculated?

The Luxury Tax is generally calculated using the taxable amount of the subject items. This means that luxury tax is applicable on the following when retail value is over:

• $100,000 for vehicles
• $100,000 for aircraft
• $250,000 for vessels

*Please note that retail value includes the fair market value of the item, freight fees, and any amount paid for the improvements (excluding accessibility modifications). When the item is imported, the retail value includes the sum of any taxes, duties, or fees (other than GST/HST) levied on importation or as assessed by the seller (for example environmental levies).

The Luxury Tax is calculated at the lesser of:

1. 10 percent of the full retail value of the item; and
2. 20 percent of the amount exceeding the set threshold (($100,000 for vehicles and aircraft, and $250,000 for vessels).

For purposes of calculating GST/HST, Luxury Tax is added to the cost of the item. As a result, the new Luxury Tax in Canada is subject to GST/HST.

Let's look at an example:

An Ontario resident is purchasing a $155,000 vehicle. The taxpayer has incurred $8,000 in delivery charges and improvements. The applicable Luxury Tax is calculated as:

If you are looking for an accountant in Hamilton for professional guidance on how the new Luxury Tax in Canada could impact your purchases of certain items, please, contact us today. We are a full-service accounting firm in Hamilton that have experienced tax accountants that can meet all your tax needs.

If you want to learn more about other tax and accounting topics, explore the rest of our blog!

Disclaimer

The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting/tax professionals. NBG Chartered Professional Accountant Professional Corporation will not be held liable for any problems that arise from the usage of the information provided on this page.