As part of the 2021 Federal Budget, the Government of Canada proposed the introduction of a tax 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.
The Luxury Tax Act now imposes a new "Luxury Tax" 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:
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:
*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:
For purposes of calculating GST/HST, Luxury Tax is added to the cost of the item. As a result, the Luxury Tax 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:
|Luxury Item (Vehicle)||Retail value||Luxury Tax|
|Retail price of vehicle||$163,000|
|Calculation of luxury tax|
Lesser of :
a) 10 percent of the full retail value of the item;
b) 20 percent of the amount exceeding the set threshold
|Luxury tax amount (lesser of a and b)||$12,600|
|Total cost of vehicle||$198,428|
If you have any questions or concerns about the new Luxury Tax, and how it could impact your purchases of certain items, please contact us. We are here to help!
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.