Issue 1 – 2022 Edition – March 1, 2022 – By Jeff Saunders, CPA, CA, Tax Partner, Teed Saunders Doyle, Fredericton, NB

Luxury Tax Update

The 2021 Federal Budget introduced a new “Luxury Tax” on select luxury goods.  The budget documents state that, “Budget 2021 proposes to introduce a tax on the sales, for personal use, of luxury cars and personal aircraft with a retail sales price over $100,000, and boats, for personal use, over $250,000. The tax would be calculated at the lesser of 20 per cent of the value above the threshold ($100,000 for cars and personal aircraft, $250,000 for boats) or 10 per cent of the full value of the luxury car, boat, or personal aircraft. This measure would come into force on January 1, 2022.1

The Department of Finance held consultations on the proposed tax running from August 10, 2021 to December 2, 20212.  Many industry groups participated in these consultations to express their concerns, including the Canadian Automobile Dealers Association (CADA).  A recent CADA Newsline article3 stated that, “…CADA met with senior finance officials responsible for the design of the tax and Finance Minister Freeland’s office. CADA, along with the Canadian Vehicle Manufacturers Association, the Global Automakers of Canada, and the Canadian Finance and Leasing Association, formally requested an implementation delay of several months to stave off disorder in the transition to the new tax regime.”

This article also noted a compounding affect in some provinces which already have a luxury tax. “CADA and its partners also made clear that the introduction of a federal luxury tax will result in compounding taxation, which will lead to exorbitant taxation levels of up to 38 per cent.”

A recent paper on the proposed luxury tax (with a focus on the application of the tax to sales of boats) – An Economic Evaluation of the Proposed Luxury Boat Tax by Jack Mintz, School of Public Policy, University of Calgary and EY Canada and Fred O’Riordan, EY Canada concluded that, “The international experience and empirical evidence from the imposition of luxury taxes strongly suggests that they raise less revenue than anticipated, impose significant compliance costs, distort purchasing decisions and have unanticipated behavioural responses.4

Following the consultation period it was anticipated that legislation would be introduced to bring this new tax into force on January 1, 2022 as originally planned.  However, when the Federal Government released its Economic and Fiscal update on December 14, 2021, that document noted that, “Draft legislation, including details on coming-into-force, will be released in early 2022.5”  On February 4, 2022, the Department of Finance released several draft proposals to implement measures announced in Budget 20216. These announcements did not include any mention of the luxury tax.  At the time of writing this article, it is unclear when the Federal Government intends to implement this tax.

This delay in implementation may provide a brief reprieve for manufacturers, dealers and consumers of boats, aircraft and automobiles.  Those with the means and desire to purchase these products may want to do so as soon as possible as the enacting legislation could be introduced any day.  Barring an unexpected change of plans by the Federal Government, this new tax will be implemented in the near future.  Please check with your local DFK Canada affiliate office for additional updates as they become available.

  1. www.budget.gc.ca/2021/report-rapport/p4-en.html#253
  2. www.canada.ca/en/department-finance/programs/consultations/2021/consultation-proposed-luxury-tax.html
  3. www.cada.ca/web/CADA/News1/Newsline_Stories/2021-12-Dec/SpecialEditionLuxuryTax.aspx
  4. www.nmma.net/assets/cabinets/Cabinet486/Luxury%20Tax%20Paper%2027.09.2021%20FINAL.pdf (page 18)
  5. www.budget.gc.ca/efu-meb/2021/report-rapport/EFU-MEB-2021-EN.pdf (page 43)
  6. https://www.canada.ca/en/department-finance/news/2022/02/department-of-finance-consulting-on-draft-tax-proposals.html