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Canada’s New Luxury Tax Is Officially In Effect – Here’s What You Need To Know

Canada’s new luxury goods tax officially took effect on September 1, 2022, specifically targeting luxury cars, private jets and yachts.

The New policy was first introduced in August 2021 when the Department of Finance Canada proposed a luxury tax, titled the Select Luxury Items Tax Act, for public consultation. The proposed tax was later included in Bill C-19 and the Budget Implementation Act, 2022, which received Royal Assent on June 23, 2022.

What items will be taxed?

The luxury tax will be applied on the sale or import of certain cars and aircraft priced above $100,000 and $250,000 for other vessels, including boats.

Vehicles typically used as personal cars, including sedans, sports cars, minivans and SUVs, will be taxed under the Luxury Goods Tax Act. The vehicle must have a total weight of 3,856 kilograms or less and have 10 seats or less.

Motorcycles, ATVs, snowmobiles, motor homes, ambulances, police cars, fire trucks, and military vehicles are exempt from the Luxury Goods Tax Act. However, there are no exemptions for electric cars.

As for aircraft, aeroplanes, helicopters and gliders with 40 seats or less will be subject to the Act. Commercial aircraft are exempt. As for vessels that fall under the law, the federal government has included yachts, sailboats, deck boats, water ski boats, and houseboats. Houseboats, ferries, cruise ships and fishing boats will not be subject to the new luxury tax.

How will the luxury tax be calculated?

According to Finance Canada, “the luxury tax is equal to the lesser of 10% of the taxable amount of the vehicle in question and 20% of the amount above the price threshold”. Buyers will then be required to pay one of two taxable amounts, which will be calculated as follows:

  1. The taxable amount multiplied by 10%
  2. The amount that results from subtracting $100,000 from the taxable amount and multiplying the difference by 20%

Canadians considering purchasing items at a high price will then be required to pay tax of either 10% of the total taxable amount or 20% of the amount above the price threshold, whichever is lower. .

So what does this really mean? Well, suppose you want to buy a luxury car that costs $200,000, you would first calculate:

  1. 10% of cost ($20,000)
  2. 20% of $100,000 (the difference between $200,000 and $100,000), or $20,000

Since they are both the same price, choosing the lower figure is not an option, so you will have to pay $20,000 in taxes.

If the car was worth $150,000, you would pay $10,000 in tax since 10% of the total taxable amount ($15,000) would be less than 20% of the amount above the price threshold, which for a $150,000 car $ would be $10,000.

In a statement released last month, the Government of Canada cited the COVID-19 pandemic as one of the reasons the law came into force.

“Some Canadians have lost their jobs or their small businesses, while certain sectors of the economy have prospered. That is why it is right today to ask Canadians who can afford to buy luxury goods to contribute a little more,” the finance ministry said. when they leave.

The cover image of this article was used for illustrative purposes only.