March 7th, 2023
Consultaxe provides you with a summary of the new federal luxury tax on luxury cars, aircraft and ships.
The new federal luxury tax has been in effect since September 1, 2022. It mainly affects dealers and buyers of luxury cars, aircraft, and ships, which include yachts and boats.
How does the luxury tax work?
The luxury tax is applicable on the retail sale and importation of certain luxury vehicles and aircraft valued at more than $100,000, and certain ships valued at more than $250,000.
Motor vehicles, aircraft, and ships registered with a government before September 2022 is not taxable under the luxury tax, provided possession was transferred to the user before September 2022. There are several exceptions to the application of the luxury tax, including for subject property used in business activities.
Does the luxury tax apply to the rental of luxury goods (vehicles, boats and planes)?
The luxury tax could apply to a taxable property that exceeds the specified threshold if the taxable property is leased to another person. The luxury tax will apply if the value of the taxable property exceeds the specified threshold, the taxable property has never been registered with the Government of Canada or a province, and the right to use the taxable property is granted to another person under an agreement that is a lease, licence, or similar arrangement.
The luxury tax will become payable by the registrant at the time the other person first has the right to use the taxable property under the agreement.
How is the luxury tax calculated?
The luxury tax is calculated as the lesser of the following two amounts: 20% of the value that exceeds the applicable price threshold, or 10% of the total value of the vehicle, aircraft, or ship. The luxury tax applies to:
- the value of the consideration for the sale of the taxable property;
- the value of the consideration for any improvements that are made to the taxable property by the seller, in connection with the sale of the taxable property, and that are not reflected in the preceding item.
The retail value of a taxable vehicle at any given time is the sum of the following:
- the fair market value of the taxable vehicle at the time;
- the total of all costs related to the transportation of the taxable vehicle that are not already included in the fair market value of the taxable vehicle;
- the total of all fees, duties, and taxes (other than GST/HST/QST) that are imposed under an Act of Parliament and payable on the taxable vehicle, and that are not already included in the fair market value of the taxable vehicle;
- the total of all provincial levies and other amounts that are collectible under provincial law and payable on the taxable vehicle and that are not already included in the fair market value of the taxable vehicle.
Collection and payment of the luxury tax
In most cases, the seller of property subject to the luxury tax will be required to pay the luxury tax upon the sale of the property.
To apply for registration, use the Online Business Registration service, or complete form L500, Application for Registration and file it with the Canada Revenue Agency.
GST/HST/QST/PST and luxury tax
GST/HST, QST and other provincial retail sales taxes are generally not included in the value of the consideration subject to the luxury tax. However, the luxury tax must be included in the value of the consideration subject to GST/HST and QST.
Here is an example of how to calculate the luxury tax and GST/QST on the sale of a vehicle.
| Vehicle | Luxury Tax | Price |
| Sale price of the vehicle | $120,000 | |
| Transportation costs | $3,000 | |
| Total invoiced by the dealer | $123,000 | |
| a) Luxury tax at 10% of the value | $12,300 | |
| b) 20% luxury tax on value over $100,000 | $4,600 | |
| The lesser of a) and b) | $4,600 | |
| Subtotal | $127,600 | |
| GST x 5 | $6,380 | |
| QST x 9.975 | $12,728 | |
| Total: | $146,708 |
As suppliers of goods subject to luxury tax, it is important to know your obligations regarding the collection of the luxury tax and to know the relevant exemptions.
You can also read our article on luxury tax exemptions. Please contact us if you would like more information and to discuss your specific situation.
The information presented in this article is intended to provide information to Consultaxe clients and others whom the topic interests. The information presented herein is general. Before making a decision, readers should consult a professional advisor.
References
https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/ltn2.html
https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/ltn3.html
https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/ltn4.html
