The proposed implementation date of this tax has been adjusted from January 1, 2022 (as proposed in Budget 2021) to September 1, 2022. Vendors and importers will need to either charge or pay the tax on any vehicles, vessels, and aircraft manufactured after 2018 that have not been registered in Canada.
Vehicles, aircraft and boats subject to the Luxury Tax include:
- Most passenger vehicles manufactured after 2018
- Does not include RVs, emergency vehicles, and vehicles with seating capacity for more than 10 individuals
- Most aircraft acquired for the leisure, recreation, sport or enjoyment of the owner or a guest, manufactured after 2018
- Does not include military aircraft, cargo aircraft, and aircraft where seats are sold to the public
- Vessels (e.g., boats) that are designed or adapted for leisure, recreation or sports activities, manufactured after 2018, subject to certain exclusions for larger passenger and commercial vessels
A person acquiring a vehicle for the purpose of leasing to others is subject to the tax.
No tax applies to vehicles, aircraft, and vessels that are registered with a federal or provincial government as required before September 2022 and where possession was transferred to the user before September 2022.
Calculation of tax
The Luxury Tax is applicable for vehicles, aircraft, and vessels with a retail value as follows:
- subject vehicle over $100,000
- subject aircraft over $100,000
- subject vessel over $250,000
The retail value includes the following:
- the Fair Market Value before trade-ins, discounts, and down payments
- any taxes, duties, fees levied on importation or as assessed by the seller (for example, document fees and environmental levies) excluding the GST/HST
- this may include provincial sales taxes where applicable
- freight charges
- modifications or improvements equal to or greater than $5,000 made within 12 months of purchase
The Luxury Tax is calculated at the lesser of 20 per cent of the amount above the threshold or 10 per cent of the full value of the luxury vehicle, aircraft or vessel. Vendors of qualifying vehicles must register with the federal government to collect and remit the Luxury Tax.
Here is an example:
|Vehicle||Luxury Tax (LT)||Price|
|Price from retailer||$106,000|
|LT @ 10% total value||$10,600|
|LT @ 20% of value above 100,000||$1,200|
|LT amount (lesser of a and b)||$1,200|
Rebates may be available in specific circumstances where the vehicle, aircraft, or vessel is exported outside of Canada. As proposed, the rebates are only available to registered vendors and applications for rebates may only be made once per quarter.
Please contact a member of the Indirect Tax team at Grant Thornton if you have any questions about how this legislation affects you and your business.