December 20, 2021
All Tax Articles

The Liberal government is planning to introduce a new Luxury Tax, to take effect on January 1, 2022. It will apply to:

new cars, SUVs and pick-up trucks costing over $100,000

boats costing over $250,000

• certain aircraft costing over $100,000

The tax will be 20% of the excess over the $100,000 or $250,000 threshold, but with a maximum of 10% of the value of the car, boat or aircraft. It will apply to both sales and importations. Exports will not be subject to the tax.

Manufacturers, wholesalers and retailers will register with the CRA under the Luxury Tax regime, and the tax will not apply to sales between any of them (e.g., from a manufacturer to a car dealer). It will apply to sales to unregistered persons. The tax will be imposed on the registered person (unlike the GST/HST, which is imposed on the customer and collected by the seller).

The Luxury Tax will be included by the seller in the total price, and GST or HST (and provincial sales tax) will then be calculated on the price that includes this tax. Thus, the cost of the Luxury Tax will in effect be 5% to 15% higher than the actual figure.

The rules for cars will cover any motor vehicle designed primarily to carry fewer than 10 passengers on highways and streets, but will not include an ambulance, hearse, combine harvester, backhoe tractor, motorcycle, snowmobile, motor home, or a racing car or all-terrain vehicle that is not road legal. The tax will not apply to vehicles over 3,856 kg gross vehicle weight. As well, a vehicle clearly equipped for police, emergency-response or military activities will be exempt if it is being delivered to (or imported by) a police, emergency-response or military authority. The tax will also not apply to vehicles delivered to a police or fire department, hospital, municipality, and certain other entities.

Details are also provided for the rules for boats and aircraft. The rules for aircraft will have a number of exclusions, such as aircraft used by airlines, charter services and flight schools, and those designed for cargo or military use. The rule for boats will apply to those designed for leisure, recreation or sport and so will exclude commercial fishing vessels, ferries and cruise ships.

Modifications to any of these goods will trigger the tax as well (with exceptions for certain modifications made to accommodate disabilities, such as wheelchair lifts).

This letter summarizes recent tax developments and tax planning opportunities from a third-party affiliate; however, we recommend that you consult with an expert before embarking on any of the suggestions contained in this blog post, which are appropriate to your own specific requirements. Please feel free to get in touch with Lee & Sharpe to discuss anything detailed above, we would be pleased to help.
Adam H. Sharpe

Hello, my name is Adam Sharpe, I am a partner at Lee & Sharpe.

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