In its 2021 Budget, the federal government proposed a new tax on luxury goods such as yachts, personal aircraft, and vehicles.
The tax will apply to cars and personal aircraft that retail over $100,000; and boats for personal use that retail over $250,000. While the government has promised more details about the new tax in the coming months, we have answers to all your questions based on what we know so far:
What is considered a luxury good for purposes of the new tax?
- Luxury vehicles - All new 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, off-road, construction, and farm vehicles would also fall outside the scope of the tax.
- Aircraft - All new aircraft typically suitable for personal use including airplanes, helicopters, and gliders are considered luxury goods for purposes of the new tax. Aircraft typically used in commercial activities such as those equipped for the carriage of passengers, and having a certified maximum carrying capacity of more than 39 passengers would be excluded.
- Boats - All new boats such as yachts, recreational motorboats, and sailboats are considered luxury boats for purposes of the new tax but smaller personal watercraft (e.g., water scooters) would be excluded.
How do I calculate the new luxury tax?
The tax is calculated at the lesser of:
- 20% of the value above threshold ($100,000 for cars and personal aircraft; $250,000 for boats); or
- 10% of the full value of the luxury car, boat or personal aircraft.
The tax would apply at the point of purchase if the final sale price paid by a consumer (not including the GST/HST or provincial sales tax) is above the $100,000 or $250,000 price threshold.
If the luxury good is leased do I still have to pay the tax?
Yes, the luxury tax must be paid regardless of the fact that the luxury good was purchased outright, financed, or leased. The full amount of the luxury tax must be paid/remitted when the lease is entered into.
Am I required to pay the tax on imported luxury goods?
Yes, imports of vehicles, aircraft and boats are subject to the tax.
When is the new tax coming into effect?
If the legislation passes into law, the tax will come into effect on Jan. 1, 2022. This means that if you are planning on purchasing or leasing a high-ticket item that is considered a luxury good, you may want to make the purchase or enter in a new lease in respect of a luxury good in 2021 and avoid the additional expense of the luxury tax next year.
Who is responsible for remitting the tax?
Upon purchase or lease, the seller or lessor would be responsible for remitting the full amount of the federal tax owing, regardless of whether the good was purchased outright, financed, or leased over a period of time.
The government budget document requested that “those who have prospered in this bleak year to do a little more to help those who have not,” and pay the new tax on luxury goods. If you need additional information about this new tax contact your BDO advisor.
The information in this publication is current as of May 3, 2021.
This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.