On June 23, the Select Luxury Items Tax Act received Royal Assent and came into effect on September 1 of this year.
The tax will apply to:
- Vehicles – Vehicles designed to carry passengers excluding ambulances, hearses, RVs and any vehicle registered before September 1.
- Aircraft – Aeroplanes, gliders and helicopters as defined by the Canadian Aviation Regulation.
- Vessels – Boats, ships and craft designed for leisure, recreation or sport activities that were manufactured after 2018. This category excludes floating homes, vessels that sleep more than 100 people.
As a result of the act, new vehicles and aircraft with a taxable amount over $100,000 and vessels with a taxable amount over $250,000 will be subject to a luxury tax. In specific situations, this tax will also be applied to the use of vessels or aircraft, as well as improvements made to vehicles, aircraft and vessels.
The tax would apply to vendors but would have an indirect impact on importers and purchasers of these “luxury” items. In some situations, the customer would remit the taxes in place of the vendor, such as when the vendor is an indigenous governing body.
The calculation of the tax will depend wholly on whether the transaction is a sale, improvement or lease. However, to give you an idea of the additional costs to consider, on most sales the tax would be the lesser of:
- 20% of the values above the set threshold (i.e. $100,00 for aircraft, $100,000 for vehicles and $250,000 for vessels)
- 10% of the full value of the item
So, if you bought a vehicle for $150,000, the tax would be $10,000, which is the lesser of:
- $10,000 ([150,000 – 100,000] X 20%)
- $15,000 (150,000 X 10%)
However, if you bought an aircraft for $650,000, the tax would be $65,000, which is the lesser of:
- $110,000 ([650,000 – 100,000] X 20%)
- $65,000 (650,000 X 10%)
If you have questions about how the luxury tax will affect you or your business, please contact us today.
