Feds launch public consultations on new luxury tax

The federal government has launched consultations on the design of the new select luxury goods tax, a campaign pledge from the 2019 federal election that also featured in this year’s federal budget.

The luxury tax would apply on the sale of new luxury cars and aircraft with a retail sale price of more than $100,000, and new boats that cost more than $250,000, the Department of Finance said on Wednesday.

The tax would be calculated on the lesser of 20% of the value above these thresholds ($100,000 for cars and aircraft, $250,000 for boats) or 10% of the full value of the luxury car, boat or aircraft. The tax is proposed to come into force on Jan. 1, 2022.

The luxury tax would help address the “uneven” economic impact of Covid-19, the government said in a release about the consultation.

“Some Canadians have lost their jobs or small businesses, while some sectors of the economy have flourished,” the government said. “That’s why it is fair today to ask those Canadians who can afford to buy luxury goods to contribute a little bit more.”

The Liberals introduced the proposed luxury tax on vehicles in its 2021 federal budget, following through on a promise they first made in their 2019 election campaign platform. In the 2021 budget document, the Liberals estimated the measure would bring in an additional $604 million over five years, starting in 2021-22.

In Wednesday’s announcement, the government said it was seeking commentary on several key design features of the proposed luxury tax, including “the detailed tax base, the application framework, and the registration rules.”

In a backgrounder document accompanying the release, the government provided several examples of how the luxury tax would apply. For a car with a price of $106,000, the luxury tax would be $1,200, or 20% of the value of the car above the threshold amount of $100,000. For a vehicle with a price of $424,150, the luxury tax would be $42,415, or 10% of the total value of the vehicle. GST would then apply on the price of the vehicle plus luxury tax.

The government is asking interested stakeholders and the public to provide comments for the proposed luxury tax by Sept. 30, indicating that feedback received through the process would be taken into consideration for preparing draft legislation.