Luxury Tax

luxury

Luxury Tax? – Yeah or Nay – Consultation Period ending on September 30, 2021.

One wonders whether the proposed Luxury Tax will be cancelled if the Liberals don’t win the September 20, 2021 election.

As part of Budget 2021, the Government of Canada proposed a new Luxury Tax set to take effect on January 1, 2022. The new tax would generally apply to the following sales or imports into Canada:

  • Sales of cars and aircraft priced over $100,000 or imports of new cars and new aircraft priced over $100,000
  • Sales of boats priced over $250,000 or imports of new boats priced over $250,000

The tax will apply to either the full purchase price of the luxury good at the rate of 10% or will apply to the portion of the price that is in excess of the amounts indicated above at the rate of 20%. The calculation that produces the lowest amount will apply.

Vendors of the luxury goods will be required to register with CRA under the Luxury Tax regime. The tax is generally meant to apply to end consumers and to not apply to goods purchased for resale by Luxury Tax registered vendors.

Furthermore, a tax-paid certificate will be issued by CRA with respect to the luxury good so that the tax would only apply to the first acquisition of the luxury good. Subsequent sales of the luxury tax-paid good will not be subject to the Luxury Tax.

Registration under the Luxury Tax regime will be mandatory for vendors who have sold or expect to sell in the next year goods subject to the Luxury Tax. Failure to do so could result in the application of a penalty of up to $1,000.

The Luxury Tax would form part of the consideration to which GST/HST applies. For example, a new vehicle priced at $110,000 would be subject to the Luxury Tax of $2,000 (the lesser of 10% of total value or 20% of the value above $100,000) plus if acquired in Ontario would be subject to HST of $14,560 (13% of purchase price plus the luxury tax). Therefore, the total GST/HST and Luxury Tax in respect of this purchase is $16,560. The government has indicated that “those who can afford to buy luxury goods can afford to pay a bit more ..(tax)”

The government is currently seeking feedback with respect to the tax and has provided a deadline of September 30, 2021 for those who wish to provide comments. Comments can be sent to fin.luxury-luxe.fin@fin.gc.ca. We will have to wait and see what the final proposed legislation will look like and whether the Luxury Tax legislation will pass through Parliament and become law in Canada.

Author

Mona Tessier, CPA, CA
Partner, Indirect Tax Specialist
mtessier@welchllp.com
613-236-9191 #207