A new luxury tax that is not unanimous | Car news

During the federal budget last year, a bill to apply a new tax on luxury goods was announced. This came into effect on 1 September. The least we can say is that it is not unanimous.

It affects all luxury goods, such as cars, boats and jets, you know the type.

The government’s goal is for the wealthiest Canadians to pay their fair share. The measurement doesn’t appeal to everyone, you guessed it. It has particularly drawn criticism from aircraft and boat manufacturers who say the tax could kill jobs in their industries.

For vehicles and aircraft, the tax applies if the sales price is at least USD 100,000. For boats, the invoice must be at least $250,000 for the tax to apply.

Regarding the vehicles, certain precisions are important. For example, if the vehicle weighs more than 3856 kg, it is exempt. Ditto if it has at least 10 seats. Motorcycles, ATVs, snowmobiles, trailers, ambulances, police cars, fire engines and military vehicles are exempt from the tax.

However, there is no exception for electric cars. Some critics argue the tax could affect vehicles meant to help the environment, at odds with other measures the government has taken to combat climate change.

For aircraft, the products covered by the law are airplanes, helicopters and gliders that can accommodate less than 40 people. Commercial aircraft, such as passenger or cargo aircraft, are exempt.

Boats covered by the law include yachts, sailing boats, deck boats, water ski boats and houseboats. Houseboats, fishing boats, ferries and cruise ships are not covered by the tax.

Now the tax can be calculated in two different ways. Either a surcharge of 10% of the price of the purchased item is added to the invoice, or an amount of 20% on exceeding the set threshold ($100,000 or $250,000).

Take the case of a $120,000 car. If we apply a 10% tax on that, we are talking about an amount of $12,000. On the other hand, if we go with 20% profit of $100,000, we are talking about a profit of $4,000. It is therefore this scenario that would be used because the cheapest tax is the one to be used.

See cars for sale near you

Conversely, if we look at the case of a $400,000 Rolls-Royce, we would apply the 10% tax or $40,000. Why ? Because 20% of $300,000 (the amount over $100,000) represents a $60,000 addition to the invoice.

The tax base includes e.g. excluding GST or QST but including all customs charges and tariffs to which the item may be subject.

The tax must be paid by manufacturers, wholesalers, retailers and importers of the luxury goods in question. Sales of these goods to manufacturers, wholesalers and retailers are exempt from tax, so the goods are not taxed twice.

The critics

The luxury goods tax has drawn widespread criticism from leaders in the aviation and marine industries, who call it a direct threat to jobs.

As CTV News reports, the National Marine Manufacturers Association of Canada (NMMA) has released a document explaining how the tax could result in at least $90 million in lost revenue for boat dealers, as well as the loss of 900 full-time jobs.

“Unfortunately, the government has failed to recognize that a luxury tax will not target the wealthy. On the contrary, it will penalize retailers, manufacturers and middle-class workers, who will be collateral damage,” said association president Sara Anghel via a press release.

Industry groups also pointed to a report by the parliamentary budget chief that the tax could result in $2.8 billion in lost sales over the next five years.

We will have to see how the automotive industry will be affected. In principle, someone buying a car over $100,000 can afford the tax, but an $80,000 or $90,000 vehicle can be chosen instead to avoid these extra charges.

We will have the opportunity to analyze everything when accurate data will give us a portrait of the situation.

Leave a Comment