Select Luxury Items Tax Act, (the Act) received Royal Assent on June 23, 2022.
The Act introduces a new Luxury Tax on the supply of new vehicles and aircrafts where the taxable amount exceeds $100,000 and vessels (boat, ship) over $250,000 in Canada.
The tax also applies on the use of aircraft or vessel in certain situations.
The tax may also apply to improvements (as defined) made to the vehicle, aircraft or vessel in certain situations.
The Act comes into effect on 1st September, 2022.
Who is impacted
The tax would impact all vendors, importers and purchasers of “luxury” vehicles, aircrafts or vessels.
What is covered
Vehicles – which includes sedans, coupes, hatchbacks etc. designed to carry passengers, but excludes an ambulance, a hearse, a RV and a vehicle registered with a government before September 2022 etc.
Aircraft – includes an “aeroplane”, “glider” or “helicopter” as defined in the Canadian Aviation Regulations and subject to some other requirements. Some of the exclusions are aircrafts solely for carriage of goods, designed for military activities etc.
Vessel – Boats, ships, craft designed for leisure, recreation or sport activities and manufactured after 2018 but excludes floating homes, vessel with sleeping facilities for more than 100 individuals etc.
Who pays?
The vendor will be required to pay the tax.
In certain cases, the customers would be required to remit when the vendor is Her Majesty in right of Canada, indigenous governing body etc.
How is it calculated?
Different calculation methods have been prescribed depending upon whether the transaction is a sale, improvement or a lease.
Generally, in case of a sale, it will be the lesser of 20% of the value above the set threshold ($100,000 for cars and aircraft, and $250,000 for vessels) and 10% of the full value of the item.
Final Thoughts
With the Act coming into effect soon, it is critical that vendors review their obligations under the Act.
If you have any questions, please contact your SLF contact.