The new tax specifically targets luxury cars, boats and planes.
Canada's new luxury goods tax has officially come into effect as of September 1, 2022, specifically targeting luxury cars, private jets and yachts.
The new policy was first introduced back in August 2021 when the Department of Finance Canada proposed a luxury tax, titled Select Luxury Items Tax Act, for public consultation. The proposed tax was later included in Bill C-19 and the 2022 Budget Implementation Act, which received royal assent on June 23, 2022.
Which items will be taxed?
The luxury tax will be implemented on the sale or importation of certain cars and aircraft priced above $100,000 and $250,000 for other vessels, including boats.
Vehicles typically used as personal cars, which include sedans, sports cars, minivans and SUVs, will be taxed under the Select Luxury Items Tax Act. The vehicle must have a total weight of 3,856 kilograms or less and have seating for 10 or fewer.
Motorcycles, ATVs, snowmobiles, motor homes, ambulances, police cars, fire trucks and military vehicles are exempt from the Select Luxury Items Tax Act. However, there are no exemptions for electric cars.
As for aircraft, planes, helicopters and gliders with seating for 40 people or less will fall under the Act. Commercial aircraft are exempt. When it comes to vessels that fall under the Act, the feds have included yachts, sailboats, deck boats, waterskiing boats and houseboats. Floating homes, ferries, cruise ships and fishing boats will not be subjected to the new luxury tax.
How will the luxury tax be calculated?
According to Finance Canada, "the luxury tax is equal to the lesser of 10% of the taxable amount of the subject vehicle and 20% of the amount above the price threshold." Buyers will then be required to pay one of the two taxable amounts, which will be calculated as so:
- The taxable amount multiplied by 10%
- The amount that results from subtracting $100,000 from the taxable amount and multiplying the difference by 20%
- 10% of the cost ($20,000)
- 20% of $100,000 (the difference between $200,000 and $100,000), which is $20,000
"Some Canadians have lost their jobs or small business, while some sectors of the economy have flourished. That's why it is fair today to ask those Canadians who can afford to buy luxury goods to contribute a little bit more," the Department of Finance mentioned in their release.
This article's cover image was used for illustrative purposes only.