Canadian Tax and Estate Planning

 A new ‘luxury tax’ on the sale of certain luxury cars, boats, and aircraft for personal use was proposed in the 2021 Canadian federal budget (2021 Budget). Similar to the reporting requirements for GST purposes, applicable sellers will be required to register, file returns and remit taxes on specified luxury items.

The luxury tax proposed in the 2021 Budget was passed into law on June 23, 2022, and will apply to qualifying cars, aircraft, and boats purchased or imported into Canada on or after September 1, 2022 (revised from January 1, 2022 as originally proposed in the 2021 Budget).

Qualifying aircraft, boats, and vehicles

Aircraft – New personal aircraft manufactured after 2018 priced over $100,000, including applicable duties, charges, or taxes (excludes GST/HST/PST/QST)

• The maximum capacity of the applicable aircraft must be 39 passenger seats or less and includes hangers and gliders in addition to airplanes.

Vehicles – New vehicles manufactured after 2018 priced over $100,000, including applicable duties, charges, or taxes (excludes GST/HST/PST/QST)

• The maximum capacity of the car must be 9 passengers or less, have a maximum gross weight of 3,856 kg or less, and have no prior history of being put into service in Canada.

Boats – New boats manufactured after 2018 priced over $250,000, including applicable duties, charges, or taxes (excludes GST/HST/PST/QST)

• The boats subject to the tax must have been designed for leisure, recreation, or sports purposes.

Calculation and assessment

Calculation of the luxury tax for aircraft and cars would be the lesser of:

• 10 per cent of the full value; and
• 20 per cent of the value exceeding $100,000

Calculation of the luxury tax for boats would be the lesser of:

• 10 per cent of the full value; and
• 20 per cent of the value exceeding $250,000

Assessment of the tax would be upon the point of sale, delivery, or import of the luxury good meeting the criteria in Canada on or after September 1, 2022. This also applies to any changes in use of aircraft or boats that no longer qualify for exemptions on or after September 1, 2022.

Exceptions to this assessment include purchases with written sales agreements made prior to 2022.. The luxury tax will apply to a lessor’s acquisition of a new good, but not for a lessee, although the tax will be factored into lease payments.

Note that any GST/HST assessed on these purchases would now apply inclusive of the luxury tax, increasing the amount of applicable taxes.

Exemptions

A general exemption for “qualifying activities” applies to the following:

Registration and filing

Sellers would need to comply with mandatory luxury tax registration prior to any delivery or import of an applicable good and, would also be required to file returns and remit tax quarterly.

Registered sellers without qualifying sales in any 12-month period could risk losing their registration status. This is impactful because, generally, registration allows for the acquisition of inventory for resale, without those acquisitions being subject to luxury tax.

Liability and penalty

Although the liability of the luxury tax rests with the buyer, sellers would be obligated to determine whether the goods sold are subject to luxury tax.

Buyers and sellers would also be jointly and severally liable for any known instances of falsifying luxury tax obligations or negligence on the matter. The penalty for such non-compliance is 50 per cent of the luxury tax assessed.

If you have any questions or need further information, please feel free to reach out to our Canadian Tax group.

About the authors

Bill Choi was a Junior Tax Specialist in our Tax group during his 2022 co-op term.

Amaan Datoo is a Principal in our Tax group. He can be reached at amdatoo@fullerllp.com or 647-417-0377.