Who pays?
The Luxury Tax will apply to registered and non-registered persons or vendors as follows. Where a non-registered person (consumer) purchases a specified vehicle, e.g. an automobile from a dealership, the Luxury Tax would be paid by the vendor upon delivery and transfer to the non-registered person. If the vendor is registered, they would report the tax to the CRA via a periodic Luxury Tax return. The reporting period for registered vendors would be quarterly with the amount owing due at the end of the month following the quarterly return. Where the registered vendor, continuing the example of a car dealer or wholesaler, imports the specified vehicles, the Luxury Tax would not be payable upon importation, only when it has been sold above the price threshold to a non-registered person.
Not all vehicles are taxed
Since the proposed Luxury Tax applies to automobiles, aircraft, and boats, there are specific considerations regarding the purchasers and end-users. Vehicles used for military activities, emergency response, police, ambulance, hearse, combine harvester, backhoe tractor, motorcycle, snowmobile, motorhome, racing car, or all-terrain vehicle that is not considered road legal are exempt.
Leased vehicles are exempt to the leasing party, however previous importation or purchase fees to a non-registered person would be subject to the Luxury Tax.
Vehicles that are purchased from one registered party within Canada to another registered party within Canada would also not be applicable under the Luxury Tax framework, provided that the parties can prove their status as certified.
Aircrafts priced over $100,000 are considered ‘specified vehicles’ if they are an airplane, helicopter, or glider with a certified maximum carrying capacity of less than 40 seats (not including the cockpit) with a manufacturer’s date of after 2018.
Boats that are priced over $250,000 are considered ‘specified vehicles’ if it is designed for leisure, recreation, or sport with a manufacturing date after 2018. However, a floating home, if defined as such by GST/HST purposes, would not be subject to Luxury Tax. Nor would commercial fishing vessels, ferries, and cruise ships.
How much is owed?
For specified vehicles that exceed the pricing threshold for the Luxury Tax, the government website states the calculation would be the lesser of:
• 20% of the retail sale price above threshold (threshold being $100,000 for cars and aircraft; $250,000 for boats); or
• 10% of the retail sale price of the luxury car, boat, or aircraft.
In respect to all select vehicles, there are provisions for modifications and temporary importations. These transactions should be assessed on an individual basis and our team is available to discuss the options in each situation.
GST/HST would apply to the final sale price, inclusive of the Luxury Tax. Fines and penalties will apply to importations by non-registered persons that are required to be registered in the amount of a “penalty equal to or greater of $1,000 and 50% of the Luxury Tax amount paid by the person in respect to the taxable importation.”2
Next Steps
The law was passed on June 23, 2022 and took effect as of September 1, 2022. As it pertains to high-net-worth individuals in Canada, there are several nuances concerning specified vehicles including the date of manufacture, intended use, modifications, certification, and tax implications as part of a larger tax strategy. Our team is available for consulting to importers, registered and non-registered persons. Please contact us for more information.
SB Partners: Raffaele Ruberto
Contact: rruberto@sbpartners.ca
1 – https://www.bnnbloomberg.ca/congratulations-from-luxury-cars-to-smokes-feds-layer-on-taxes-in-latest-budget-1.1592344
2- https://www.canada.ca/en/department-finance/programs/consultations/2021/consultation-proposed-luxury-tax/select-luxury-goods-tax.html
