Canada’s New Luxury Tax Comes into Effect September 1, 2022
The Luxury Tax (“LT”) is a new tax on the sale of road vehicles and aircraft where the consideration payable is greater than $100,000 (and marine vessels over $250,000) levied on the vendor of the vehicle. The tax applies to vehicles where the agreement to purchase or lease was entered into after January 1, 2022 and where delivery takes place after September 1st, 2022.
Who needs to register?
Any individual, corporation, partnership or other business who either sells or imports subject vehicles with a value of or more $100,000 that have never been registered in Canada or a Canadian province is required to register for LT.
LT does not apply to sales between registered vendors of subject vehicles, supplies of emergency and military vehicles, vehicles equipped to accommodate more than 10 passengers, vehicles with a gross weight of 3,857 kgs or more, vehicles manufactured before 2019, vehicles that have already been provincially registered and most used vehicles.
How does it apply?
The vendor of a subject vehicle is required to remit tax equal to the lesser of:
10% of the total value of the vehicle, or
20% of the value of the vehicle in excess of $100,000
In a case where a vehicle is being leased, rented or used for demonstration purposes, the vendor is obligated to calculate the tax based on the fair market value of the vehicle at the time the lessee first acquires use of the vehicle.
How is the value calculated?
The value of the vehicle is based on purchase price of the vehicle and any before sale modifications plus any other taxes (except GST/HST), duties, fees delivery and import fees. GST/HST is to be collected on the total consideration payable for the vehicle including any LT that is shown in addition to the purchase price on the bill of sale.
After sale modifications
Any modification made to a vehicle within 12 months of purchase will require the purchaser to self-assess LT if:
The purchase price of the vehicle was above the threshold price, and
The purchase price of the improvements exceeds $5,000
LT is not payable on modifications made to accommodate wheelchairs or to allow individuals with a disability to operate the vehicle.
For more information, please contact your Taylor Leibow advisor.