For the 2022 tax season Canada is ushering in a new luxury tax of vehicles, boats, and aircraft.

Here is a breakdown of that the new tax means for Canadians. The luxury tax applies to inventory in Canada, as well as inventory imported into Canada, of new vehicles, vessels and aircraft. Like most tax rates it is applied to thresholds for vehicles and aircraft priced over $100,000, the tax is calculated as the lesser of 10% of the taxable amount and 20% of the taxable amount over $100,000. For vessels over $250,000, the tax is calculated as the lesser of 10% of the taxable amount and 20% of the taxable amount over $250,000. This does exclude GST/PST but would include any other possible taxes for import fees such as duty on the item. In most cases the customs act would be used to determine taxes that are required for import.

Here are some specific notes for a few of the industries that will be affected. These new rules apply to vehicles, watercraft and aircraft.

Dealers/resellers

• There will not be a Luxury Tax if the sale of the subject vehicle was closed prior to 2022
• What ever inventory you have on hand September 1, 2022 that will be a subject vehicle, will have to be taxed on a sale on September 1 2022 and thereafter.
• Who is liable for the tax? the dealer/reseller this will be the same as GST collecting
• Sales between dealers/resellers to other dealers/resellers there is an exemption applies on subject vehicles
• If a dealer/reseller cease to be a registered vendor the luxury tax will apply on any subject vehicle in inventory.
• Certain exclusions from Luxury Tax for example on sales to military, federal and provincial governments, indigenous governing body
• Subject vehicles used by a dealer/reseller registered with a government that is used as a demo or loaner vehicle will be subject to a Luxury Tax  paid by the dealer/reseller the payment will be on the market value.

Sales and leases

• There is a Luxury Tax on leases of subject vehicles
• There is no Luxury Tax on leases of subject vehicles that were previously registered with a government in Canada this should avoid double taxing

Improvements to Subject Vehicles

• Improvement is up to one year after the sale.  Purchase October 1, 2022 to October 1, 2023
• Improvement will not be taxed if total improvements are less than $5,000
• Luxury Tax on improvements will have to be paid, if date used above is October 1, 2023 on October 2, 2023

If you have questions please reach out and contact us