Luxury Goods Tax What You Need To Know

Plans for a luxury goods tax were first introduced in last year’s federal budget, but the bill to introduce the tax was not introduced until April 2022. The Luxury Goods Tax Act received royal assent in June 2022. Finance Minister and Deputy Prime Minister Chrystia Freeland said the tax will help ensure wealthier Canadians pay their fair share of taxes. But the move has also been criticized by aircraft and boat manufacturers, who say the tax could kill jobs in their industries. Here’s what you need to know about the tax and how it applies:

WHAT IS TAXED?

The new federal tax covers new vehicles, aircraft and ships built after 2018 that exceed certain price thresholds. For vehicles and aircraft, the luxury tax applies to goods priced above $100,000, while ships above $250,000 are affected by the tax. Only vehicles commonly used as personal vehicles, such as sedans, sports cars, minivans, and SUVs, will be taxed under the Select Luxury Goods Tax Act. The vehicle must weigh 3,856 kg or less and have seating for 10 or fewer passengers. Motorcycles, ATVs, snowmobiles, motorhomes, ambulances, police cars, fire engines and military vehicles are exempt from the tax. There are no exemptions for electric vehicles, and critics have warned that the tax could hurt vehicles meant to help the environment, as prices for some EVs can exceed $100,000. For aircraft, products covered by the law include airplanes, helicopters and gliders with seats for fewer than 40 people. Commercial aircraft such as airplanes or cargo aircraft are excluded. Vessels subject to the Act include yachts, sailboats, deck boats, water ski boats and barges. Houseboats, fishing boats, ferries and cruise ships are not subject to the tax.

HOW IS THE TAX CALCULATED?

The tax is calculated as the lesser of:

10 percent of the price of the item, or 20 percent of the item’s price is deducted from the limit (either $100,000 or $250,000)

For example, a luxury car priced at $110,000 would be taxed at $2,000 since 20 percent of $10,000 is less than 10 percent of $110,000. However, a $560,000 yacht would be taxed on $56,000, since 10 percent of $560,000 is less than 20 percent of $310,000.

The taxable amount does not include PST, GST, HST and QST, but includes any customs fees and duties to which the item may be subject.

WHO SHOULD PAY THE TAX?

The tax must be paid by manufacturers, wholesalers, retailers and importers of the affected luxury goods. Sales of these items to manufacturers, wholesalers and retailers are exempt from tax, so the items will not be taxed twice. Manufacturers, wholesalers, retailers and importers should apply to the CRA as a registered seller under the Act.

WHAT DID THE MANUFACTURERS SAY ABOUT THE TAX?

The luxury goods tax has drawn widespread criticism from leaders in the aerospace and shipbuilding industries, who have called the tax a “job killer.” In December 2021, the National Marine Manufacturers Association Canada released a document detailing how the tax could result in at least $90 million in reduced revenue for boat dealers, as well as the loss of 900 full-time jobs. “Unfortunately, the government has failed to recognize that a luxury tax will not target the rich. Instead, it will penalize dealers, manufacturers and middle-class workers who will become collateral damage,” union president Sara Anghel said in a press release at the time. Organizations representing the aviation industry also wrote to Freeland and Prime Minister Justin Trudeau in May 2022, saying the tax could result in $1 billion in lost revenue and the loss of 1,000 jobs. “The effect of imposing this proposed luxury tax on private jets will have long-term detrimental effects on the average working-class Canadian family,” the letter said. Industry groups also pointed to a report by the Parliamentary Budget Officer, which found the tax could result in $2.8 billion in lost sales over the next five years. When asked about such concerns, Freeland told reporters during a media availability Wednesday that it was “totally reasonable” to ask someone who can afford a luxury car, plane or boat to pay an extra tax. “I think it’s great for Canadians to be successful. It’s great for Canadians to be prosperous. I also think that people who are doing very, very well should feel comfortable supporting everybody else,” he said. “And I bet if you ask the truckers and engineers that are here, they think it’s fair that someone who spends $250,000 on a boat should pay a 10 percent luxury tax so we can afford the things we need as a country I bet that they would say “Yes, that makes a lot of sense”. With files from CTV News’ Rachel Aiello

title: “Luxury Goods Tax What You Need To Know Klmat” ShowToc: true date: “2022-10-21” author: “Abraham Williams”

Plans for a luxury goods tax were first introduced in last year’s federal budget, but the bill to introduce the tax was not introduced until April 2022. The Luxury Goods Tax Act received royal assent in June 2022. Finance Minister and Deputy Prime Minister Chrystia Freeland said the tax will help ensure wealthier Canadians pay their fair share of taxes. But the move has also been criticized by aircraft and boat manufacturers, who say the tax could kill jobs in their industries. Here’s what you need to know about the tax and how it applies:

WHAT IS TAXED?

The new federal tax covers new vehicles, aircraft and ships built after 2018 that exceed certain price thresholds. For vehicles and aircraft, the luxury tax applies to goods priced above $100,000, while ships above $250,000 are affected by the tax. Only vehicles commonly used as personal vehicles, such as sedans, sports cars, minivans, and SUVs, will be taxed under the Select Luxury Goods Tax Act. The vehicle must weigh 3,856 kg or less and have seating for 10 or fewer passengers. Motorcycles, ATVs, snowmobiles, motorhomes, ambulances, police cars, fire engines and military vehicles are exempt from the tax. There are no exemptions for electric vehicles, and critics have warned that the tax could hurt vehicles meant to help the environment, as prices for some EVs can exceed $100,000. For aircraft, products covered by the law include airplanes, helicopters and gliders with seats for fewer than 40 people. Commercial aircraft such as airplanes or cargo aircraft are excluded. Vessels subject to the Act include yachts, sailboats, deck boats, water ski boats and barges. Houseboats, fishing boats, ferries and cruise ships are not subject to the tax.

HOW IS THE TAX CALCULATED?

The tax is calculated as the lesser of:

10 percent of the price of the item, or 20 percent of the item’s price is deducted from the limit (either $100,000 or $250,000)

For example, a luxury car priced at $110,000 would be taxed at $2,000 since 20 percent of $10,000 is less than 10 percent of $110,000. However, a $560,000 yacht would be taxed on $56,000, since 10 percent of $560,000 is less than 20 percent of $310,000.

The taxable amount does not include PST, GST, HST and QST, but includes any customs fees and duties to which the item may be subject.

WHO SHOULD PAY THE TAX?

The tax must be paid by manufacturers, wholesalers, retailers and importers of the affected luxury goods. Sales of these items to manufacturers, wholesalers and retailers are exempt from tax, so the items will not be taxed twice. Manufacturers, wholesalers, retailers and importers should apply to the CRA as a registered seller under the Act.

WHAT DID THE MANUFACTURERS SAY ABOUT THE TAX?

The luxury goods tax has drawn widespread criticism from leaders in the aerospace and shipbuilding industries, who have called the tax a “job killer.” In December 2021, the National Marine Manufacturers Association Canada released a document detailing how the tax could result in at least $90 million in reduced revenue for boat dealers, as well as the loss of 900 full-time jobs. “Unfortunately, the government has failed to recognize that a luxury tax will not target the rich. Instead, it will penalize dealers, manufacturers and middle-class workers who will become collateral damage,” union president Sara Anghel said in a press release at the time. Organizations representing the aviation industry also wrote to Freeland and Prime Minister Justin Trudeau in May 2022, saying the tax could result in $1 billion in lost revenue and the loss of 1,000 jobs. “The effect of imposing this proposed luxury tax on private jets will have long-term detrimental effects on the average working-class Canadian family,” the letter said. Industry groups also pointed to a report by the Parliamentary Budget Officer, which found the tax could result in $2.8 billion in lost sales over the next five years. When asked about such concerns, Freeland told reporters during a media availability Wednesday that it was “totally reasonable” to ask someone who can afford a luxury car, plane or boat to pay an extra tax. “I think it’s great for Canadians to be successful. It’s great for Canadians to be prosperous. I also think that people who are doing very, very well should feel comfortable supporting everybody else,” he said. “And I bet if you ask the truckers and engineers that are here, they think it’s fair that someone who spends $250,000 on a boat should pay a 10 percent luxury tax so we can afford the things we need as a country I bet that they would say “Yes, that makes a lot of sense”. With files from CTV News’ Rachel Aiello