September 1, 2022

The new Luxury Tax announced in the 2021 Budget came into effect today. It introduces a new tax on the sale or importation of certain luxury items.

Officially called the “Luxury Items Tax Act”, the new tax covers cars, SUVs, planes and helicopters worth more than $100,000.00 and yachts and boats worth more than $250,000.00, bought for personal use.

The tax is calculated at the lesser of 20% of the retail sale price above the thresholds mentioned above, or 10% of the full retail sale price of the item bought. The tax will apply at the point of purchase if the final sale price including duties, charges and taxes (but excluding GST / HST or provincial sales tax) is above the threshold.

You are required to register with the Canada Revenue Agency (“CRA”), if you are a:
• manufacturer
• wholesaler
• retailer
• importer

and in the course of your business activities, you sell or import certain vehicles and aircraft priced over $100,000 and vessels priced over $250,000.

The penalties for not registering can be pretty steep. The penalty just for failing to register is $2,000.00 . In addition, if you are an importer and failed to register when the tax was payable, then there is an additional penalty calculated as the greater of $1,000.00 or 50% of the luxury tax that was payable.

The Act allows transactions between registered vendors of the same type of subject item without the luxury tax applying at the time of sale by using exemption certificates. But if a person that is not registered, falsely claims to be a registered vendor on an exemption certificate in order to purchase its inventory exempt from the luxury tax, the person will be liable to another penalty in addition to any other penalty. That penalty is the greater of $1,000 and 150% of the luxury tax that would have been payable.

Finally, there are additional reporting requirements. A person that is registered or required to be registered under the Act must file a return for each reporting period. Generally, the reporting period is a calendar quarter. The return must be filed by the end of the month that follows the end of a reporting period, and any amount owing for the reporting period is also due at that time.

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