As part of Budget 2021, the Government of Canada announced its intention to introduce a new Tax on Select Luxury Goods (the Luxury Tax), effective as of January 1, 2022, aimed at helping to ensure that those Canadians who can afford to buy luxury goods are contributing a little more. Budget 2021 also included supplementary information regarding the proposed tax.
This technical paper seeks to provide Canadians and stakeholders with additional information about the Luxury Tax proposed in Budget 2021, and to obtain feedback regarding its design. Subject to final legislation being enacted, this paper lays out the proposed key design features of the Luxury Tax. Interested parties are invited to send written submissions on the proposed elements to the Department of Finance Canada, Tax Policy Branch, on or before September 30, 2021, at firstname.lastname@example.org. Notably, in this regard, the Government of Canada acknowledges the feedback that it has received to date regarding the Luxury Tax proposed in Budget 2021 and seeks additional feedback, including any potential impacts that the proposed Luxury Tax, as outlined below, might have in remote communities.
Feedback received will be taken into consideration for the purposes of finalizing the design and drafting the legislative proposals in respect of the proposed Luxury Tax. It is anticipated that the legislative proposals in relation to the Luxury Tax regime would subsequently be included in a bill to be introduced in Parliament.
Overview – Luxury Tax Rates and Points of Imposition
The Luxury Tax would apply to deliveries in Canada by way of sale or similar arrangement, as well as importations into Canada, of new cars and new aircraft priced over $100,000, and new boats priced over $250,000 (the price thresholds, respectively). These goods (irrespective of their price) are sometimes referred to as select goods in this technical paper. In relation to deliveries in Canada, the Luxury Tax would apply if the total price (which would include charges and fees, but not include the applicable GST/HST or provincial sales tax) of the select good at the retail level exceeds the relevant price threshold. In relation to importations into Canada, the Luxury Tax would apply if the value of the select good (as determined for the purposes of calculating GST/HST on imported goods) at the time of importation exceeds the relevant price threshold. The Luxury Tax would be calculated as follows:
- for vehicles and aircraft priced over $100,000, at the lesser of 10% of the total price of the vehicle or the aircraft and 20% of the total price above $100,000; and
- for boats priced over $250,000, at the lesser of 10% of the total price of the boat and 20% of the total price above $250,000.
In most circumstances, no Luxury Tax would be applicable in relation to transactions occurring between persons that are registered with the Canada Revenue Agency (CRA) under the Luxury Tax regime, such as manufacturers, wholesalers and retailers of select goods above the relevant price threshold. In general, the Luxury Tax would be applicable only if the select good is delivered in Canada to, or imported into Canada by, a person that is not registered under the Luxury Tax regime, such as a consumer that acquires or imports the select good for their personal use and enjoyment. For deliveries in Canada, in most situations, the registered person that delivers the select good to the non-registered person would be responsible for paying the Luxury Tax and for the filing of a periodic Luxury Tax return. The liability to pay the Luxury Tax would rest with the registered person.
Under the Luxury Tax regime, a delivery in Canada of a select good would refer to the delivery of the select good in Canada by way of sale or similar arrangement. For example, the legal delivery of a select good in Canada from a vendor to a purchaser under a sale transaction would represent a delivery in Canada for Luxury Tax purposes. Leases of select goods would not be considered deliveries of select goods under the Luxury Tax regime (e.g., a select good provided to a person in Canada by way of lease or similar arrangement would not represent a delivery in Canada for Luxury Tax purposes, as there is no sale of the select good to the person). In most circumstances, the provision of a select good to a person by way of lease or similar arrangement would be preceded by an earlier delivery or importation of the select good, which would have been subject to Luxury Tax. For more information regarding how the Luxury Tax would affect leases of select goods, see the discussion below under Leases – All Select Goods.
For importations by non-registered persons, in most situations, the Luxury Tax would be payable at the border to the Canada Border Services Agency (CBSA) by the non-registered importer at the time of importation. The liability to pay the Luxury Tax would rest with the non-registered importer.
Exports of select goods would not be subject to the Luxury Tax.
The remainder of this technical paper will expand on the concepts introduced in this Overview, and provide other details regarding the application of the Luxury Tax regime for specified vehicles, specified aircraft and specified boats.
Source: Government of Canada
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