On September 1, the federal government implemented a luxury goods tax for yachts, private jets, and luxury cars.
The plan to establish the tax wasn’t introduced until April 2022, even though plans for one were initially mentioned in the federal budget for the previous year. In June 2022, the Select Luxury Items Tax Act received royal assent.
Chrystia Freeland, the Deputy Prime Minister and Minister of Finance stated that the tax would help ensure that the wealthiest Canadians were paying their fair share of taxes. Meanwhile, manufacturers of boats and aircraft criticized the decision, claiming it could result in the loss of jobs in those sectors.
How will this tax be implemented?
The new federal tax applies to new cars, aircraft, and ships manufactured after 2018 that cost more than a specific amount.
The luxury tax applies to commodities costing over $100,000 for vehicles and aircraft and over $250,000 for ships.
The Select Luxury Items Tax Act only applies to vehicles frequently used as personal vehicles, such as sedans, sports cars, minivans, and SUVs. In addition, there must be no more than 10 seats in the vehicle, weighing no more than 3,856 kg.
The following vehicles are exempt from the tax: motorcycles, ATVs, snowmobiles, motor homes, ambulances, police cars, fire trucks, and military vehicles.
Electric vehicles are not excluded from the tax, and since some EVs can cost more than $100,000, critics are worried that the fee may harm environmentally friendly vehicles.
Under aircraft, the tax applies to gliders, helicopters, and planes with less than 40 seats. While commercial aircraft, such as airliners or cargo planes, are exempt.
The Act includes yachts, sailboats, deck boats, waterskiing boats, and houseboats as subject vessels. The tax does not apply to floating homes, fishing boats, ferries, or cruise ships.
The tax is determined as the lesser of the following amounts:
10% of the item’s price or 20% is subtracted from the threshold ($100,000 or $250,000.).
For instance, a luxury car at $110,000 would have $2,000 tax, because 20 per cent is less than 10 per cent of $110,000.
While a $560,000 yacht would have a $56,000 tax as 10 per cent of $56,000 tax is less 20 per cent of $310,000.
The PST, GST, HST, and QST are not included in the taxable amount; however, they include any customs duties and tariffs that the item would incur.
Leaders in the aerospace and marine manufacturing industries have criticized the luxury goods tax harshly, labelling it “job-killing.”
The National Marine Manufacturers Association of Canada published a document in December 2021 outlining how the tax might cause boat dealers to lose 900 full-time jobs and at least $90 million in revenue.
According to Sara Anghel, National Marine Manufacturers Association president, the government has neglected to acknowledge that a luxury tax won’t specifically target the wealthy. Instead, it will punish middle-class workers, dealers, and manufacturers as collateral damage.
In May 2022, organizations representing the aviation sector wrote to Freeland and Prime Minister Justin Trudeau, warning them that the tax might lead to the loss of over 1,000 jobs and $1 billion in income.
A report from the Parliamentary Budget Officer that, business associations cited, the tax may cost the economy $2.8 billion in lost sales over the next five years.
In response to these concerns, Freeland told the media on Wednesday that it was “absolutely reasonable” to charge an additional tax to someone who can afford a fancy car, plane, or boat.
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