Luxury vehicle tax to bring in less than $800M over five years: PBO

The luxury vehicle tax could bring in $779 million over five years but cause a $2.9-billion drop in sales of the vehicles over the same period, a new government report finds.

In an updated legislative costing note, the Parliamentary Budget Officer estimated the tax, which is set to take effect Sept. 1 pending parliamentary approval, would bring in less than $200 million per year for the five years ending in 2026-27.

Taxing luxury cars would make up the bulk of that five-year revenue: $572 million.

However, the PBO estimated that sales of luxury aircraft, boats and cars would drop by $2.9 billion or 15% over the five years ending in 2026-27. On a percentage basis, aircraft sales would be hardest hit, with the tax expected to result in a 24% drop in sales over the period.

In making that estimate, the PBO assumed that the luxury vehicle industry would recover from the effects of the Covid-19 pandemic this year.

The luxury vehicle tax is a measure the Liberals campaigned on in the 2019 election and was first introduced in the 2021 federal budget. Bill C-19 from the current legislative session, if passed, would enact the Select Luxury Items Tax Act, which applies to the sale of new cars and aircraft priced over $100,000, as well as new boats priced over $250,000.

The tax would be the lesser of 10% of the total price of the item and 20% of the total price of the item above the threshold. The tax will not apply when a bona fide, written purchase agreement was entered into for the item prior to 2022.

Bill C-19 has passed second reading and is being considered by the Standing Committee on Finance.

Melissa Shin

Melissa is the editorial director of Advisor.ca and leads Newcom Media Inc.’s group of financial publications. She has been with the team since 2011 and been recognized by PMAC and CFA Society Toronto for her reporting. Reach her at mshin@newcom.ca. You may also call or text 416-847-8038 to provide a confidential tip.