The government of Canada has introduced a luxury tax on the sale or import of certain vehicles and aircraft priced above $100,000 and certain vessels priced above $250,000.
The luxury tax, which was first announced on Aug. 10, 2021, came into effect on Sept. 1, 2022.
Types of vehicles that qualify for the luxury tax
A vehicle qualifies for the luxury tax if it is a motor vehicle manufactured after 2018 that meets all of the following criteria:
- Is designed or adapted to carry individuals on highways and streets
- Has a seating capacity of no more than 10 individuals
- Has a gross vehicle weight rating of 3,856 kg or less
- Is designed to travel with four or more wheels in contact with the ground
Motor vehicles that have already been registered with the government before Sept. 2022 are excluded from the definition as long as possession was also transferred to the user of the vehicle before this date.
Motor vehicles clearly marked for policing activities, emergency medical or fire response vehicles, ambulances, hearses, and recreational vehicles meeting certain conditions are also excluded.
Types of aircraft that qualify for the luxury tax
An aircraft qualifies for the luxury tax if it is an airplane, glider or helicopter manufactured after 2018 that meets any of the following criteria:
- Is equipped only with one or more pilot seats and cannot have any other seating configuration
- Is equipped only with one or more pilot seats, or is not equipped with any seats, and cannot have a seating configuration of 40 seats or greater excluding pilot seats)
- Is equipped with one or more pilot seats and one or more passenger seats and has a seating configuration of 39 seats or fewer (excluding pilot seats)
Aircraft that have already been registered with the government before Sept. 2022 are excluded from the definition as long as possession was also transferred to the user of the vehicle before this date.
Types of vessels that qualify for the luxury tax
A vessel qualifies for the luxury tax if it has a date of manufacture after 2018 and is designed or adapted for leisure, recreation, or sporting activities.
Vessels that have already been registered with the government before Sept. 2022 are excluded from the definition as long as possession was also transferred to the user of the vehicle before this date.
Generally, floating homes, commercial fishing vessels, ferries, and cruise ships are excluded.
Will I have to pay the luxury tax?
The luxury tax does not apply if you are registered with the CRA as a registered vendor of the particular items that you are selling or importing.
Certain companies or individuals are required to register with the Canada Revenue Agency (CRA) as registered vendors under the Luxury Items Tax Act. These include manufacturers, wholesalers, and importers of vehicles, aircraft, and vessels that fall within the scope of the Luxury Tax regime and are priced above the price thresholds. If registered, you will be able to purchase or import those items without the luxury tax applying at the time of sale or importation.
In general, the luxury tax will only be leveraged on individuals who are not registered under the luxury tax regime; typically, consumers who are purchasing and/or importing luxury items for personal use.
How much is the luxury tax?
The luxury tax is calculated using the taxable amount of the subject vehicle, which is equal to the lesser of:
a) the taxable amount multiplied by 10%
b) the amount that results from subtracting $100,000 from the taxable amount and multiplying the difference by 20%
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