New Luxury Tax Coming into Force on Planes, Boats & Automobiles
By: Chad Saikaley, CPA, CA, TEP
Partner, Head of Tax, Advisory Services
If you’ve been eyeing a new Tesla Model X or perusing marinas looking for a new boat to enjoy next summer, you may need to dig a little deeper into your pockets when it’s time to sign on the dotted line. On September 1st, 2022, a new luxury tax will be applied to recreational vehicles, aircraft and vessels. The Select Luxury Items Tax Act will be applied to vehicles and aircraft with a retail price of $100,000 or more. Vessels costing $250,000 or more will also be impacted. The provisions for the luxury tax were introduced in the 2021 Federal Budget and received Royal Ascent earlier this summer.
The luxury tax applied to the purchase or lease of vehicles, aircraft and vessels will be the lesser of either 10% of the purchase price, or 20% of the difference between the purchase price and the price threshold of $100,000 for vehicles and aircraft and $250,000 for vessels. Any extras or modifications, the freight and transport, excise tax and any other costs that are part of the purchase will all be included in the total cost when calculating the luxury tax payable. In addition, the luxury tax is added to the total cost before HST is calculated. So that Model X with a list price of $165,190 will now cost an additional $13,038 in luxury tax ($165,190 – $100,000 x .20 = $13,038) and $23,170 in HST for a grand total of $201,397 ($178,228 x 1.13 = $201,398). For vehicles and aircraft priced above $200,000, the 10% tax rate would apply.
The new luxury tax will apply to sedans, coupes, hatchbacks, convertibles, sport utility vehicles and light duty pickup trucks designed to primarily carry people on highways and streets. Most motorhomes designed or adapted to provide temporary residential accommodations are exempt from the tax. Personal aircraft, including airplanes, gliders and helicopters built after 2018, and with a capacity of less than 40, will be eligible for the tax. Aircraft purchased for commercial purposes are exempt.
Purchasers of a vessel priced between $250,000 and $499,000 would deduct the threshold amount of $250,000 from the purchase price and add 20% in luxury tax to the difference. For a boat with a cost of $450,000, the luxury tax would be $40,000 ($450,000 – $250,000 x .20 = $40,000). HST would then be applied bringing the total cost to $553,700 ($490,000 x 1.13 = $553,700). The luxury tax will apply to recreational vessels such as yachts, sailboats and motorboats built after 2018. Commercial vessels and floating homes are exempt.
The luxury tax is not applied on the purchase or lease of second-hand vehicles, aircraft or vessels.
Vendors of Luxury Vehicles, Aircraft and Vessels
Manufacturers, wholesalers and retailers who sell or import vehicles, aircraft and vessels priced above the $100,000 and $250,000 threshold must register with Canada Revenue Agency by completing the L500 Luxury Tax Application Form. Luxury tax collected by any business is due to the CRA at the filing deadline for each reporting period, along with the completed ‘Luxury Tax and Information Return for Registrants’ form B500. Sales between registered vendors are exempt.
The reporting deadlines for 2023 are:
- April 30 for the January 1 to March 31 period
- July 31 for the April 1 to June 30 period
- October 31 for the July 1 to September 30 period
- January 31, 2024 for the October 1 to December 31 period
Failure to register can result in a penalty of $2,000. Failure to submit the luxury tax could result in a penalty of $1,000 or 50% of the amount of the luxury tax that is payable, which ever is greater.
For more information on how the new luxury tax may impact your business and your reporting and collection requirements, please contact Chad Saikaley.